Juan Correa-Ossa

What drives long term equity returns? Many people think it is economic growth. And yet, several studies have shown that GDP growth has zero correlation with long term returns. So what should you pay attention to? In a recent piece we broke down returns for 33 countries over the past 26 years into several components. Our results showed that net buybacks (essentially equity dilution) were the most important driver. This is in line with other academic research on the subject. Dilution explains why countries like China that experienced economic miracles had such poor equity performance. Corporate profits as well as stock market profits soared, and yet EPS was very poor due to extreme levels of issuance.

To the extent we are seeing emerging AI effects on the labor market, this framework is the one that best fits the data so far IMO

What if the market is just pricing in a slowdown in frontier development because of the Ocarina of Time / GTA 6 release this month? Conservatively there is going to be a 20% drop in productivity 😝

I think we are starting to see some sectoral effects on employment from AI in the labor market. Granted overall labor market can remain strong (notice right axis much greater than left axis), but this compositional differences can definitely affect wage growth.

Index has been very tame but with historic levels of chaos in factor land this year.

The short term problem for Meta is that they lack a cloud business. Their growth is incredible for a company their size, but if you are not getting the hockey stick in operating cash flow from selling compute, markets are going to be less forgiving about massive capital raises.

ICE cars becoming Swiss mechanical watches?

This environment of very strong nominal GDP growth and weak wage growth is the perfect environment for corporate profits

Hyperscalers crushed it! I still think they continue to have upside into year end  

The decline in the labor share of income has been a big driver of the increase in corporate profits this past year. Such a big contribution from a falling labor share has only been seen previously coming out of recessions and is unprecedented this late in the cycle.

I think it’s under appreciated how the gap between frontier models and open source models has actually widened over the past few months. Frontier models giving more intelligence for your money both at the cheap and most expensive end. Let’s see if it holds.

I think is under appreciated how much even the poorest Americans have delevered since 2010. And no is not just rising asset prices. Liabilities versus cash equivalents is also at multi decade lows

I have argued for a while that the circular financing argument by AI bears is blown out of proportion mainly because Nvidia cash conversion had been awesome. However this quarter we did see some deterioration in revenue quality. Here Nvidia now vs Lucent in 2000.

Lots of investors worried about high interest rates. Small businesses however are not. Other than housing, it’s hard to see how even 5% rates slow an economy growing at such a high nominal rate.

Good piece. “Every shortage leads to a glut” is an adage that has often been true but one that is also the consensus in the investment community. Nice to see a counterexample.

So far so good!

Two weeks ago we argued that clients should rotate away from AI infrastructure towards AI capex spenders. The Hyperscaler multiple has been crushed because the market doesn’t believe these companies can create enough ROI. My view is that investors are in for a surprise

C&I monthly loan growth is coming back to earth.

Agree with Marko. A bit of home cooking for the host is standard. This is nothing. For reference in 1966 when England won in home soil they: 1) were given a phantom goal in the final 2) had Argentina’s captain sent off in the QF vs them for “dissent” even though the ref spoke no Spanish 3) An English ref let Portugal literally break the legs of the world’s best player (Pele) People need to stop their sanctimony