Why A "Nasty Recession" Is Still Incoming
Submitted by QTR's Fringe Finance
Friend of Fringe Finance Mark B. Spiegel of Stanphyl Capital released his most recent investor letter on January 31, 2024, with his updated take on the market’s valuation and his longstanding bet against Tesla.
Mark is a recurring guest on my podcast and definitely one of Wall Street’s iconoclasts. I read every letter he publishes and only recently thought it would be a great idea to share them with my readers.
Like many of my friends/guests, he’s the type of voice that gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.
Photo: Real Vision
Mark was kind enough to allow me to share his thoughts from his January 2024 investor letter (edited slightly for length and grammar by QTR). This letter also contains positions his fund has on, both long and short.
Mark On Markets And The Economy
This month our large Tesla short position worked nicely as the stock finally began reflecting the fact that its growth story is as dead as its batteries in a Chicago winter. I believe there’s over 80% downside still to come in that stock and write plenty more about that later in this letter.
Also this month, our largest long position Volkswagen was up nicely as the market finally seems to be recognizing its great value (discussed later in this letter); additionally, today it announced the founding of an AI lab. (Yes, this deep-value fund is apparently now long “an AI stock”!)
Meanwhile, the recession that I (and many leading indicators) predicted hasn’t yet arrived, and thus our large SPY short position continues to hurt us (despite today’s post-Fed meeting slide). However, not yet arriving isn’t the same as not arriving, and I strongly believe that a recession will appear in the first half of this year and the expensive stock market will suffer severely from it.
The consensus is now for either “no landing” or a “soft landing,” yet before even the worst recessions the consensus is nearly always for a “soft landing”; for example, here’s just one headline of many from 2007:
In fact, for reasons I clearly lay out below, I still strongly believe that the U.S. economy is headed for a hard landing. Meanwhile, the stock market has been rallying fiercely in response to the lessening inflation which is a natural predecessor of the hard landing I expect! So now despite myriad lurking dangers—both economic and geopolitical—the market is now extremely overbought and investor sentiment is quite bullish.
Here's a chart that perfectly captures the stock market’s current decoupling from “reality”…(READ THIS FULL NOTE HERE).
