Take Me Out
w.282 | Calculus of Value, Powell, Kids Share, Vanguard & Bonds, & Modular Nuclear
Dear Friends,
I hope you are enjoying the last few weeks of August. There is a lot going on acorss the world, which should be an interesting setup for a busy fall.
At least for now, it feels like the calm before a storm.
Today's Contents:
Sensible Investing: Trends
Song of the Week: Take Me Out
Sensible Investing: Trends
The Calculus of Value - Latest Howard Marks memo. The TL/DR is that you should reduce aggressive holdings and increase defensive holdings. It’s worth noting that he does run a large credit fund, so this rotation is in his own interest.
It’s worth a read in its entirety in this market. One highlight:
What’s the bottom line of the calculus? Fundamentals appear to me to be less good overall than they were seven months ago, but at the same time, asset prices are high relative to earnings, higher than they were at the end of 2024, and at high valuations relative to history. Most bull markets are built through the addition of a “constellation of positives” on top of a well-functioning economy. Today I see elements that include the following:
the positive psychology and “wealth effect” resulting from recent gains in markets, high-end real estate, and crypto,
the belief that, for most investors, there really is no alternative to the U.S. markets, and
the excitement surrounding today’s new, new thing: AI.
These are the kinds of things that have the ability to fire investor imaginations and contribute to bull markets, and they certainly seem to be doing so now.
Monetary Policy and the Fed’s Framework Review. Jerome Powell, Chair of the Federal Reserve, gave his latest speech on August 22, 2025. Howard Marks noted in his memo that it’s always helpful to read primary sources, rather than rely on the reactions of others, so I present this:
Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.
At the same time, GDP growth has slowed notably in the first half of this year to a pace of 1.2 percent, roughly half the 2.5 percent pace in 2024 (figure 3). The decline in growth has largely reflected a slowdown in consumer spending. As with the labor market, some of the slowing in GDP likely reflects slower growth of supply or potential output.
Turning to inflation, higher tariffs have begun to push up prices in some categories of goods. Estimates based on the latest available data indicate that total PCE prices rose 2.6 percent over the 12 months ending in July. Excluding the volatile food and energy categories, core PCE prices rose 2.9 percent, above their level a year ago.
He also reiterated his commitment to the 2% inflation target and noted we have been above that for four years, but it’s at odds with employment goals.
Measures of longer-term inflation expectations, however, as reflected in market- and survey-based measures, appear to remain well anchored and consistent with our longer-run inflation objective of 2 percent.
Equity markets rallied after the speech on Friday, likely in anticipation of lower interest rates and high inflation.
Bonds Remain In Favor In Time-Varying Model Portfolio from Vanguard. They recommend a 70% allocation to bonds. This portfolio has a 5.5% projected annualized return over 10 years, and I have no idea how it plans to beat the inflation of the dollar.
It was also reported this week that President Trump has bought over $100 million in bonds from big-name companies since taking office, so do with that what you will.
The AI Revolution Needs Nuclear Power Now. In Obviously The Future, Michael Staton and I explored solutions to the energy needs of data centers and why we're excited about Aalo Atomics' modular nuclear reactors, HQ’ed in Austin!
Kids’ Share 2024: Report on federal expenditures on children through 2023 and future projections. According to the Urban Institute, the federal government allocates approximately $5 in spending for seniors for every dollar spent on children; across all levels of government, this ratio is 2:1. This is one reason why it’s better to be in healthcare than education.
Song of the Week: Take Me Out
Here on YouTube.
Songwriter Alex Kapranos said the idea for the song's theme came from watching a snipers' duel in the film Enemy at the Gates - a fantastic movie! - and that "it felt like a very good metaphor for the kind of romantic situations that we sometimes find ourselves in."
I just like the song. It’s a classic. Maybe in investing, you don’t want to allow any one position to take you out.
“Take Me Out” by Franz Ferdinand
I want you to take me out
If I move, this could die
Eyes move, this can die
Come on, take me outSelfie of the Week
Dominique Ansel, a bakery near my office/apartment in NYC, invented the “cronut” in 2013. It’s a mix between a croissant and a donut. The flavor changes every month. This month, it is Peach & Tres Leches. Yes, they are terrible for your health, but they are also a delight to all when you show up with them in hand.
Thanks for reading, friends. Please always be in touch.
As always,
Katelyn