Macro Review: Looking back
Hi everyone,
The summer is over and I thought it would be a good time to quickly go back over all the things I’ve written over the last ~ 1 year and see what I’ve gotten right and wrong.
I’ll be excluding the Sleepy Portfolios, book reviews and mining/energy transition but everything else will be fair game.
Macro Thoughts - The Coming Boom for American Workers?
Published: July 22, 2022
In this article, I laid out that the US would not go into a recession within the next year (which was the consensus last year) is bittersweet. For the most part, I’ve nailed the macro call (higher for longer), but the markets have done the exact opposite of what I was expecting.
China & Europe continue to be a mess economically, much to the benefit of the US. Immigration to the US remains fairly restrictive and baby boomers continue to retire en masse which is leading to much of the labor shortages (which executives can’t stop complaining about about).
Lately, the labor market data has shown some moderation and easing. Even if there is a recession (likely due to central banks raising interest rates), I think the US will weather the slowdown the best as most debt holders have termed out their debt (unlike Canada, Europe & Australia).
AI is a wildcard here, I’m skeptical that it’s going to completely automate many roles/jobs but should over time help at the margins.
Trade Idea - Buying the dip in Canadian Energy
Published: July 26, 2022
In this article, I suggested buying a call spread on Canadian heavy oil producers MEG Energy (MEG) and Cenovus (CVE). The MEG energy calls spread was December 20/24 and the CVE calls spread was December 25/30.
This trade didn’t really work out. MEG never got close while Cenovus got close but petered out into year-end.
For most of this year (2023), energy has languished but MEG has had a phenomenal year while Cenovus has underperformed due to operational headaches.
I wrote an update in November closing out the trade where I roughly broke even. But that’s always the risk with options, you need to nail the thesis and timing!
Company Highlight - Green Brick Partners
Published: August 8, 2022
Green Brick Partners is a home builder focused on the US South East & South West (Atlanta, Dallas-Fort Worth, Denver, etc.). When I wrote this article, the doom and gloom around home builders was thick and heavy.
The market has done a complete 180 on home builders (and Green Brick).
My mistake was selling Green Brick far too early. I sold the position in May for around ~$44 on that big spike after earnings. Needless to say, I should have just sat on my hands.
The stock has been weak of late as David Einhorn’s Green Light Capital has looked to sell a portion of its stake in the company here. The company is still cheap on a valuation basis and I love the long-term fundamentals. But I think I’ll stay on the sidelines and wait to see what happens over the next 6 to 12 months before taking any action.
My other mistake is that I should have written an update when I sold the position as I wrote about it as a buy last year. Going forward I’ll be more diligent.
Macro Thoughts - It's Getting Scary Out There
Published: August 26, 2022
This post touched on a whole bunch of things. The one issue that I’ll review is the first point; when pump’n’dumps went mainstream.
AMTD Digital (HKD) had a “market cap” of more than $500 billion dollars. The stock is now down 99.67% from its peak and yet we seem to have learned nothing because VFS is the latest pump’n’dump to hit the markets.
Why the markets (NYSE & NASDAQ) and the regulators continue to allow these overseas companies to list with tiny floats (less than 1%) which makes them so easy to manipulate is beyond me. It seems that we’ve learned nothing and continue to repeat the same things over and over again (ala Ground Hog Day).
Macro Thoughts - Will LATAM turn the corner?
Published: September 2, 2022
This was a bullish article on LATAM (specifically Mexico, Chile & Brazil). Overall it’s been a bit of a mixed bag. Mexico has done really well, Brazil was holding in pretty well until recently while Chile has sucked.
The latest surge in the US dollar has hurt performance and the recession / China fears have hit commodity prices across the board (except for oil) which has put further pressure on Brazil & Chile.
Political risks have receded but the AI boom has sucked capital out of everything (again) and funneled it into the “Magnificent 7”.
All three markets are still fairly cheap. But at this point, I’m lukewarm on Mexico and much more bullish on Brazil & Chile.
Company Highlight - Compania Cervecerias Unidas S.A.
Published: September 9, 2022
Compania Cervecerias Unidas (CCU), or United Brewery, is the giant Chilean beer brewer. The stock remained under pressure for most of 2022 but did extremely well for H1 2023.
Since peaking in late July, the stock has dropped almost 25% in value but I still like the company’s long-term prospects.
I will probably look to add more sometime this fall.
Macro Thoughts - Squeezing Blood From A Stone & Macro Thoughts - Getting over the hurdle with Lockheed Martin
Published: September 30, 2022 & October 28, 2022
In these two articles, I talked about corporate margins and the rising risk-free rate; using Union Pacific (UNP) and Lockheed Martin (LMT) as examples for each.
Corporate margins continue to be under pressure and the risk-free rate (using the Federal Reserve’s overnight lending rate) has increased far more than I expected.
Again, I think I nailed the macro theme but got the market reaction completely wrong.
Corporate margins continue to deteriorate and will only get worse the longer interest rates remain high. Baby boomers aren’t getting any younger, US immigration is still quite restrictive (relative to history) and the emphasis on reshoring / nearshoring / friendshoring isn’t going away.
Company Highlight - Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB)
Published: November 17th, 2022
OMAB is one of the three Mexican airport operators and this stock has been flying (pun intended). The company is in the Sleepy Global portfolio and unlikely to come out any time soon.
The Mexican economy is booming and northeastern Mexico which is its industrial heartland continues to see huge capital investment.
Despite the rise in the share price, the valuation isn’t all that bad thanks to a low starting base and growth in the mid-teens.
Just to reiterate though that there is risk to the name due to its economic sensitivity. But overall it’s a great company to own for the long run and I would use any pullbacks as an opportunity to add.
Macro Thoughts - How Low Can The S&P Go?
Published: January 20th, 2023
This is the one that I got by far the most wrong. I, like everyone else, was all beared up and it showed. Since publishing, the SPY is up double digits while the tech-heavy (and Mag7-heavy) NASDAQ is up over 30%.
While I could argue (like many others) that all of the returns are due to the “Mag7” and the AI bubble. It doesn’t matter, I was really wrong.
I have more thoughts coming on this subject so I’ll save them for that article.
Macro Thoughts: Spy The Lie
Published February 3, 2023
In this article, I talk about Elon Musk and all the lies he spins. In the Q4 conference call in late January, Elon claimed this:
Elon Musk: Demand far exceeds production, and we actually are making some small price increases as a result.
Well, we all know now that this was an outright lie. Tesla continues to cut prices and is struggling with growing inventory problem. And even then, the brand new factories in Austin and Berlin continue to shutdown for extended period of “maintenance” and “retooling”.
Tesla will report Q3 results on October 18th and they will probably show margins continuing to decline while inventory continues to grow.
Of course, that hasn’t hurt the stonk (yet). Tesla has been lumped into the AI bubble and Mag7.
Just this morning, Morgan Stanley’s analyst Adam Jonas published a ridiculous piece on Tesla and the stonk is up over 6% in the premarket and was up almost 9% at one point.
My guess is that there’s a big equity issuance coming soon from Tesla or Elon (the Twitter interest payment is coming due and Space-X remains grounded).
At some point, reality is going to catch up to this car company, but it hasn’t yet.
Company Highlight - Winning With Whitecap Resources
Published: April 12, 2023
Whitecap Resources is a Canadian oil and gas company that is a core holding of mine.
The first half of the year was rough for the company and has trailed its benchmark (XEG) since I published. With all that being said, I’m still a massive fan of the company and it’s probably the closest thing to a #NeverSell that I’ve got.
Grant and the team continue to execute by steadily growing the company, paying down debt, and returning capital to shareholders. At the end of August, they announced a 26% dividend increase. If energy prices stay where they are here and the company continues to execute, we could see another 20%-25% dividend increase sometime H2 2024 as well.
The company is extremely high quality and the debt overhang from the XTO acquisition is steadily declining. Hard to say what it will do over the short term, but over the next 3 to 5 years I think it’s still going to be a massive winner.
Conclusion
And that’s it for this review. I got some things right and some wrong. Overall I think I’ve done much better with the company highlights than the macro forecasts.
So going forward I’ll try and spend more time on companies and a little less time on macro.
Disclosure: I am long and have a beneficial interest in all of the above-mentioned securities. I may change my holdings at any time post-publication.
Disclaimer: This newsletter and/or any other articles that I publish should not be construed as investment advice. None of the strategies or securities mentioned should be considered as an investment recommendation to buy or sell. I am not an investment advisor and I highly recommend that anyone considering this investment strategy or any of the securities first consult with a registered investment advisor to assess both the suitability and risk of any strategies or securities that are mentioned.
Brilliant post!! Thanks for all the actionable insights.