Spooky House is one of the favorite bedtime reads for my kids. We don’t just read it in the month of October, we read it year round. While there is no reason for my kids to still recoil, or jolt in horror after I flip a page, or when we look to see what’s behind a window-they still do. It is a lot of fun. I’ve read Spooky House hundreds of time, and I still look forward to reading it since we all have such a good time with it.
Some of you might know that I’ve spent an inordinate amount of time over the last few years studying China, and especially Chinese internet companies. I have been incredibly excited about the technology revolution taking place in China, and I have been part of it as an investor. To learn, I even took a 10 day trip to Shanghai and Beijing last summer where I was able to meet some of their strongest companies. It was an incredible experience. I’ve been very optimistic on China, the rise of technology, and the heavy research & development spent by the Chinese government.
On the flip side, the issues of excessive Chinese debt have been well chronicled over the past decade. I have seen the endless swath of buildings first hand. Therefore, as an investor, my job is to keep an open mind and look for data that would invalidate my thesis. While Chinese government data helps, I trust the information from global companies that operate in China, or Chinese companies that trade on the U.S. exchanges much more. And let me tell you, that data has been spooky and has made me jolt and recoil. Macau, the Las Vegas of China, has slowed incrementally over the past two months. Spending on luxury goods, which the Chinese love, has slowed over the past two months. Travel in and out of the large tier one cities, and to and from neighboring countries has cooled. Auto sales have outright declined this quarter. Several U.S industrial companies operating in China have mentioned a slowdown. Not only is the slow down broad, it is also sudden, and spooky. No wonder the Chinese market is falling like a rock.
We also have slowing growth in Europe, and controversies around Brexit and Italy budget. The tax boost in the U.S. which helped earlier in the year is slowly fading. No wonder a coordinated global slowdown is slowly but surely hitting U.S. shores. Now also happens to be just the time when U.S markets are very optimistic about future growth, and the U.S. Fed is compounding problems by signaling an interest rate increase to combat inflation. So, if you are wondering why the markets are selling off now – the U.S. is just catching up to the declines in the rest of the world.
Large institutions are adjusting their portfolios and getting defensive. This repositioning creates a stampede of selling, which could last for a while, and makes for one spooky house.
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This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of the Fund. These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described. These forward-looking statements will not be updated in future.
I am an investor and these are my personal thoughts on investing, behavioral finance, markets, and sports viewed through the prism of a Latticework