Joe Tonnos

My latest Substack post analyzes $XOM once again catching $TSLA in terms of market cap. Last 5 qtrs: $XOM returned ~$40bb to shareholders via divvies, buybacks. $TSLA: $0.00 That is what really matters. But the key to investing is the second derivative, and as EV sales slow (good for demand for oil, obvs, and for $XOM) I fail to see the Silver Bullet for $TSLA. Why? Because Elon let his product line get old. No amount of robotaxi/FSD necromancy is going to change that. Trade accordingly. Excelsior! --Jim

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Interesting contribution to the "will they cut, how much and when" Fed discussions - from the horse's mouth (the SF Fed). Now we see documented what the FOMC has been betting on and still hopes to see (lagged effects). Are models picking up these effects? I would argue that the risk is that holding at current Fed funds levels now represents a risk to the Fed's own strategy, as models clearly point to rising inflation and some of the Fed models would argue for much higher rate levels than our 6.75% - 7.00% suggestion for Q1 2025. We may have to revise our outlook if the lags work out as very broadly suggested in the SF Fed paper. But we are also data dependent, and so far we are perhaps a year early for the major lagged effects to kick in? #fed #softlanding #election2024 #usa

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Highlights from some recent Fountain Gate Advisors “summer reading” (and listening) touching on the interplay of credit spreads and rate cuts: Pitchbook - Q2 2024 US PE Breakdown (7/13/24) Report packed with a ton of data, but particularly love the editor’s headline “The Fed may be on hold, but PE got its rate cuts in H1”, referring to the loan spread compression phenomenon in broadly syndicated and private credit financing markets that occurred in the first half of the year. https://lnkd.in/eT-xFPYM Bloomberg - Surveillance TV Podcast (7/12/24) Commenting on the recent CPI data fueling increased expectations for rate cuts later this year, Mohamed El-Erian (Queens’ College, Cambridge, former CEO of PIMCO) noted that the very broad based, benign inflation numbers from last week provide evidence of “demand destruction and loss of pricing power…” that is being echoed in commentary from companies, investor expectations for earnings season, and macro data that is starting to weaken. https://lnkd.in/eJev9wE9 The factors above provide a setup for lower effective borrowing costs in the back half of the year and into 2025 for the predominantly floating rate borrowers in the middle market. These lower effective borrowing costs would help absorb some erosion in profitability without fully impacting free cash flow and debt service coverage metrics.

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We were quoted yesterday by CNN Underscored in an article by Matt Whittaker, Paul Curcio, and David Tony, "How to invest in #uranium in 2024." ⚡Uranium is a heavily regulated, #zerocarbon, supply and demand story. ⚛As of April, Vogtle Unit 4 at the Alvin W. Vogtle Electric Generating Plant in #Georgia is the newest U.S. nuclear reactor to begin commercial operation—the first since 2016. 🌏Across the world, approximately sixty nuclear #reactors are under construction with most of them in #China, but also in Bangladesh, France, India, South Korea, Slovakia, Argentina, Russia, Turkey, Egypt, and UK. Also quoted in the article was Henry Preston of the World Nuclear Association. QUOTED EXCERPTS: “Helping to push prices up are limited supply and #nuclear power being seen as key in the fight against climate change due to its zero-carbon emissions,” said Michael Ashley Schulman, chief investment officer with Running Point Capital Advisors. “Commodities almost always make for volatile investments,” Schulman, said. “On top of that, uranium is under strict regulation by governments globally, unlike most other #commodities. Government and safety #regulation can affect mining, storage and distribution of this radioactive element and cause sudden swings in price and demand.” “On the negative side are hangover fears of the element from the 1970s and 1980s anti-nuclear protests as well as the more recent Chernobyl and Fukushima nuclear disasters,” Schulman said. “Although renewable energy sources like solar and wind are increasingly cost-competitive with nuclear power and could dampen demand for uranium in the long run, neither is as constant or as predictable as nuclear energy since #solar doesn't work at night and climate change makes #wind patterns even more unpredictable for consistent power generation,” Schulman said. “If new nuclear power plants are built or existing ones extended or expanded, future uranium demand is likely to rise above expectations, which could nudge up the price of uranium #stocks and #ETFs,” Schulman said. #investing #CNN #wealthmanagment #financialadvisor #greenenergy ~~ Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-24-88

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The Artificial Defensive Build up Of Fed's Wealth Dislocation From Liquidity In just 2 months the Magnificent 7's value has surged over $2 trillion as a defense against debasement. The Magnificent 7 stock defensive float rose 60% over the last 12 months.Dollar defensive stock & bond float will shortly meet the liquidity crisis of dislocated value of unproductive artificial asset prices on Mag 7 stocks at $15 trillion in price perception. Coming to the networth of a home near you ! In essence like time, matter and death, the law of nature prevails against the artificial delusion of the wealth effect from monetary policy stock props. As always nature is a dynamic interplay of opposites on price perception,behavioral & financial perception patterns. Each defensive perception will eventual meet it's date with reality derived from speculative knowledge versus operative knowledge, The principle violation of speculative knowledge via monetary props is the 15 trillion delusion in the allotment of time) when value perception meet mark to market illiqiudity, arrive at the pearly gates of exit visa's and dedollarization dislocated in US debt demand hidden in Fed Treasury buybacks and accounting. Where debt are booked as an asset, If the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with 'free banking.' The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” — Paul Volcker (1994)

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What's the best time to extend duration when rates start to come down and curves start to "disinvert"? Should you "T-bill and chill" until the central bank pulls the trigger and starts cutting, or is the juice all squeezed out of longer yields at that point? It’s a relevant question as more and more central banks start cutting rates, particularly for economies such as Iceland where policy rates are probably some distance above neutral. Thankfully, there’s a highly relevant and recent case study. A group of mostly EM economies with a thorny inflation history hiked rates early and fast in 2021, which helped bring inflation under control fairly quickly and allowed for rate cuts as early as last summer. I tried to search for clues based on the experience of these EM early hikers in a note to clients earlier this week (see link for a great summary by the editor of Innherji Hörður Ægisson: https://lnkd.in/ggNiP9sV). The average policy rate in these economies rose by 960bps, but has been cut by 290bps since last summer. During that period, 10Y yields rose on average 630bps, but have since rallied by 210bps. In other words, there is pretty strong transmission up the curve from the policy rate, leaving some interesting ways to play duration… which just leaves the question of timing. Here’s where things get interesting: On average, most of the rally in longer term yields takes place in around 300 trading sessions *before* the first cut. So far, there has been very little tightening of long yields *after* rate cuts commence. In other words, the rally tends to be driven by the end of hiking cycles, more than by the start of cutting cycles – when the cuts finally start, chances are there’s not a whole lot of juice left in longer term yields. Of course there’s no guarantee this pattern will be repeated, but it does support my gut feeling that the way to play policy normalisation is to be fairly discerning about placement on the curve, rather than blindly loading up on duration (even more so in markets where term premia have been eviscerated by QE).

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Every day the markets are trying to predict how many rate cuts we’ll have this year and when they will happen. I recently sat down with Joseph LaVorgna, Chief Economist of SMBC Nikko Securities America, Inc., and asked him what Powell would do. (https://lnkd.in/e9HbXXeD) I appreciated Joe's uniquely nuanced perspectives as we discussed the tools Chair Powell has at his disposal. When there’s this much disagreement among economists about what the Fed should do, Joe reminds us that sometimes it’s Wayne Gretzky who has the answer. Many thanks, Joe, for an illuminating conversation. Joe's frank analysis of our economic policy is essential viewing for market participants. I encourage you to watch the entire conversation on our site. https://lnkd.in/e9HbXXeD #expertconversations #capitalmarkets #federalreserve #economics #interestrates

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The dollar/yen exchange rate is falling. It broke through the 141.68 level at the time of the yen carry trade liquidation that caused a large-scale plunge in the U.S. and global stock markets on August 5, and is currently recording 140.93 at 2:52 p.m. on September 13. It is interpreted that the dollar/yen exchange rate is falling further as the U.S. is certain to cut interest rates at the FOMC next week. #Yen

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