Now We Will See Who Is Quality

Now We Will See Who Is Quality

The Fed won’t be arriving on a white horse to rescue investors anytime soon.

  • The Fed may be finally learning the lesson that inflation is a persistent, long-term problem that lacks a quick remedy.
  • In the absence of easy money, the price of goods, services and assets will eventually find a natural price equilibrium. Fundamentals will start to matter again as they did pre-2009 / Quantitative Easing (QE).

In such an environment, we will see which investors are quality and which are shit.

  • The index / ETF playbook won’t be an effective asset gathering / money management strategy in a normal, non-QE world. Active Managers will outperform.
  • In a 5-6% Fed Funds world, going long-only goosed by options won’t be an investment strategy that outperforms. You better know what you own in order to outperform. Owning “the right stuff” is going to be what outperforms.

In such an environment we will see which CEOs and Management Teams are quality and which are shit.

  • CEOs won’t be able to issue cheap debt to buyback stock to put a floor under the stock price and their options packages. CEOs will actually have to sweat capital allocation decisions around hiring people, investing in technology, investing in new product areas, geographies and the like.
  • It is good when life is hard. It is good when CEOs have to exercise their brains and test their character as opposed to running on autopilot fueled by cheap capital.