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Hi friends, 

Whew, what a week.  I've been working on more Obviously the Future pieces, but none are fully baked yet.  Luckily, we have plenty of macro-economic news and large-scale investment activity to dig into.

Today's Contents:

  • Good Reads: Sensible Investing
  • Macroeconomics: Inflation
  • Weekly Song: Everything Trying

Good Reads: Sensible Investing

DocuSign CEO’s answer to: “Why are so many of your reps quitting?” This was shared widely on Twitter and is worth sharing here.  The questions worth considering are: How generalizable is this experience to other companies and to the broader market?  And, what are the implications for tech companies and their employees?

Passive fund ownership of US stocks overtakes active ownership for first time.  Around 16% of US stocks are held by index trackers and ETFs vs 14% by actively managed funds.  Here in the FT. 

Highflying Tiger Global humbled by unraveling of giant tech bet: The New York firm was a heavy investor in technology stocks and startups when the market peaked.  The downturn has vaporized years of its gains.  PDF of the WSJ article here

Stripe's secondary valuation drops 40%.  A sign of the times for sure: John Collison, Co-founder & President of Stripe, said he was unsure if the company could justify its $95 billion valuation given the current economic environment.  Month over month declines in secondary prices as shown by data from ApeVue. 


Sohn 2022 | John Collison interviews Stanley Druckenmiller

Worth watching this video here

He highlighted two historical facts that have undefeated track records: (i) Once inflation is >5%, it has never come down until Fed Funds rose above than CPI; and (ii) Once inflation is >5%, it has never been tamed without a recession. He thinks the first will be violated, but he sees a recession and highlights that the Fed has orchestrated just 2-3 soft landings historically (notably ‘94-’95) but with Fed Funds at 75bps and projections at 2-3% vs inflation at 8.6%, we are so far behind, with so much wood to chop, on the back of such a large asset bubble going into this next period that probabilities support a hard landing.

Here's a tweet thread summarizing the talk. 

Macroeconomics: Inflation

The headline from the BLS on Friday is that inflation is up.  Way up.  I'm now mostly quoting from this article in the FT:

The monthly rise in the consumer price index was 1%, which is significantly higher than the 0.3% increase in April and above economists’ expectations of a 0.7% rise.  This takes the annual rate of inflation to 8.6 per cent, the highest level since December 1981.

Of course, you have to look at the components of the gain: 3.9% of the monthly rise comes from energy prices, but services inflation is up 5.2% for the year as well. 

One of the reasons I write this newsletter (and, I recommend that anyone who is interested in making predictions or investing write with a regular cadence) is it provides the ability to go back to old thinking.

In Declarative Statements w.79 (Jan 26, 2021) about 18 months ago, I included the transcript of, as well as commentary on, a podcast with Paul Singer titled The End Game.  His prediction for the next 18 months of Fed policy and inflation were spot on:

The Fed has announced that it is dangerous to be under 2% inflation, and in the fall they would like to average to 2%.  Average to 2% when you are coming from below means your target has to be above.  So when it gets to 2.5% in a couple of periods, how will the Fed react?  And is it possible that it causes an inflation break out?

When inflation lifted off, it just kept going in the 1970s.  There is a good chance given the determination to spend trillions on COVID-19 relief to guarantee low-interest rates that we will experience a tremendous surprise in the near future.

What would the surprise be?

Consumer price inflation breaking out and keeping going. 

The Fed's smug assumptions will start to be challenged, and then what will they do?

What will they do?  That's the right question. 

Market consensus is that they will raise interest rates by another half point next week, although some suspect we will see three-quarters (prompting Friday's losses).  But, what else?  Or what more?

Weekly Song: Everything Trying

Everything Trying as played in La Grande Bellezza here.

La Grande Bellezza (English: The Great Beauty. Trailer here) is one of my all-time favorite movies.  Everything about it is fantastic.  It's worth multiple watches.  I love the entire sound track, but I picked Everything Trying for this week. 

Trying means difficult or annoying; hard to endure and it's just an apt sentiment.  I like that everything trying isn't in the lyrics, and the solution offered up is "sail back to you," which sounds calm and reasonable and is quite the opposite of 'everything trying' because it is also clear it probably will never happen. 

"Everything Trying" by Damien Jurado
And I would come back and admit that it wasn't your fault
But I'm tired and unwilling to be the only one who was wrong
And I would sail back to you
And I would sail back to you


Thanks for reading, friends.  Please always be in touch.

As always,

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Katelyn Donnelly
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