E87: Emerging markets, Sri Lanka, 9.1% CPI, market sentiment, NASA's Webb telescope & more

Well, the lapping effect turned out not to be enough, and inflation is still rising. So we have not yet peaked on CPI. I understand that core we have peaked, but deciding to exclude energy and food, I mean, that's a pretty arbitrary decision.

You know, our target, the collective wisdom of the market believes that 3% is enough to get the job done. We're right now at 1.5 to 1.75. So if there's any number between 3 and 5 that is the true price, we have a lot of work to do to get there.

And so, yeah, we took a half a billion dollar shot. I wrote $125 million check. I hope it works.

As a result, a lot of dollars are moving out of emerging market debt into US debt, and the price of that debt has collapsed. We've seen in the last couple of months a decline of emerging market debt of about 20 percent. This makes it harder for those countries to issue new debt to fund things, and it's creating this really challenging spiral that may ultimately lead to defaults.

And what's really important here is that as goes Sri Lanka, so goes Ghana, so goes Pakistan, so goes a whole bunch of countries where you're already starting to see food riots, food insecurity, energy insecurity, rampant inflation, sovereign defaults.

That is deindustrialization. I mean, reversing from like the modern techniques of industrial production, like fertilizer and modern systems of farming, is deindustrialization. It's going to be a curse, ultimately.

Sri Lanka is not rich enough to resist. That's the issue. So the US has an ESG rating of 51%. Sri Lanka has 98%. Why is that? Because in our country, we're not going to impose these crazy mandates. There's enough resistance to it.

just like they flipped last week and they made natural gas and nukes, nuclear power, a green energy. So yeah, their morals and ethics and their virtue signaling go as far as their wallets and their heat and meals go, as we all know.

And I'm going to still maintain that the E is wrong. The earnings are wrong for most of these companies. So why? Well, one is that when these companies start to report their quarterly earnings starting in the next few days, the year-over-year comparison is going to be to the numbers that they posted in Q2 of 2021, which by all accounts was a blowout number.

Currently, and this is for the S&P 500, we're currently at 20 or so, and we have twice in our lifetime kind of hit that 13, 14, 15 level, so we could have a 25% correction from here in the stock market.

And so where is the stopping and the slowing down of spending? It just may be reflexively this thing where everybody feels like to be, you know, to have the polite dinner conversation. They have to talk about how they're pulling back.

There are some of those events brewing, right? We've talked about the consumer credit risk. We talked maybe Taiwan, maybe this emerging market crisis that may kind of be emerging.

The problem with going organic and organic fertilizer was all of the small farms shut down. All of the large farms had 20 to 30% crop yield reductions. The prices of food went crazy.

So, the result of that was that overall production, agricultural production, fell by a third and rice production fell by 43% and rice is, you know, the biggest staple in the country. So, now you got people there starving or going hungry.

It feels like things are turning over in real estate. We talked about that last week. The number of homes being listed is skyrocketing. The number of mortgages being originated is plummeting while the rate goes up. So we're going to see mortgage rates probably go six, seven percent towards the end of the year.

And there are many businesses that are public that operate like that, that regardless of any of these turtles popping their head out, those businesses will perform well over the next decade.

You know, I tend to agree with Friedberg. I mean, you find these businesses that you like, and if they appeal to you and you do your work, that's the most important thing.

It's supposed to be back up by July 21st. And so the real question is what happens if Putin hand checks Europe and just takes an extra day or two to get that thing back up and going?

Let me make a prediction. I think the Western Alliance is going to fracture come this winter.

It looked like Ukraine was winning the first couple of weeks, but now it looks like Russia has won this Donbass region.

So they don't necessarily have to buy at any point. They just need to make money in the end. So right now we're in a situation where the markets are looking for a direction. Retail seems to think that direction should be up. Hedge funds don't have an opinion or saying, we're just going to wait this thing out.

So, you know, my very, very, very anecdotal experience has been that significant market participants I think are going to start to perk their head up this quarter and start to think about doing new things.

We're investing, but we see that the pace of deal making has slowed way down because founders know that valuations have gone down, the fundraising environment is tougher. So last year, they're raising every nine months. Now they know they should probably be raising it once every two years.

So I have no doubt that the Fed can stop inflation. I think the question is how much pain are they going to have to inflict? How high do rates have to go? And how long do we live through this sort of stagflationary period?