EP164 · Economy · first published 2022-12-02
The Market Is Going Up | Kevin van Dessel and Teemu Liila | Neuvottelija 164
Kevin van Dessel and Teemu Liila of the Sijoituskästi podcast deliberately build a bull case at a moment when most listeners expect further falls. The discussion covers the turn in the rate cycle, the nature of inflation, and why the equity market prices the real economy roughly six months ahead. The guests unpack the triad of growth, value and quality and argue why a high policy rate is an opportunity rather than an obstacle for a growth investor. It also covers leverage, record cash weightings, the closing of the IPO window and the winner's curse. It ends on popular capitalism, Finns' thin equity wealth, and why good news does not always lift a share price. Published 2 December 2022.
The Market Is Going Up | Kevin van Dessel and Teemu Liila
Summary: In episode 164 of the Neuvottelija channel, Sami Miettinen interviews Kevin van Dessel and Teemu Liila of the Sijoituskästi podcast. It is a double episode made together with Sijoituskästi. Published 2 December 2022.
A note on reading this. The premise is deliberate: a listener poll pointed to a falling market, so the guests were asked to build the bull case. This is therefore a considered contrarian exercise rather than a balanced market review, and that is said out loud in the episode. Not investment advice.
The brief: build the upside case
Miettinen sets the frame directly: most listeners believe the decline continues, so let us deliberately take the contrarian episode. Liila acknowledges it with a laugh: “Forced into bull indicators only, then.”
More interesting is the reformulation the guests themselves make: not what could lift it but what will lift it. An important difference, as van Dessel notes.
The first driver: the market fronts the real economy
The guests’ mechanism is classic but carefully unpacked. The equity market seeks to front-run the real economy — to anticipate events so that a return can be made from them. From that follows the conclusion that is the episode’s spearhead:
“When inflation turns for the better, the turn has already been seen.”
On the time horizon they give a figure: about six months, more broadly six to nine. Miettinen adds a good qualification: an investor’s own DCF looks ten years out, but the market’s pricing horizon for real economy events is much shorter.
The concrete signal at the time of recording: the S&P 500 had risen about 5.5 per cent in a month.
The second sentiment driver is the visibility of the rate peak: once the market is convinced the rate level will not rise further, sentiment turns.
Why the start of a rally is always dismissed
The best single observation concerns how the start of a bull market is recognised — by permabears dismissing it.
The mechanism is logical and therefore a trap. When the market begins rising before the real economy has bottomed, the criticism is that the equity market is running away from fundamentals. In reality the market is merely pricing future improvement in advance.
Van Dessel divides bears into two types, and the second is the dangerous one:
- The one who flees the market because prices are falling — perhaps does not understand investing very well.
- The one who understands investing well, even very well, and grounds their position in fundamentals not yet supporting a rally.
The latter forgets Howard Marks’s second-level thinking: a poor economic outlook must first be reflected against valuation. If the market is in bad shape but valuations already price that in, there is more upside than downside. Hence Buffett’s be greedy when others are fearful — and the case for investing during fear even when fundamentals are weak.
Miettinen sums it up: a speed bump in the real economy early next year is likely, but you jump over it by discounting.
Growth, value and quality — and why value’s return limps
The triad is borrowed from Karo Hämäläinen’s books, and the guests handle it carefully.
After Covid growth valuations ran away and their attractiveness relative to value steadily weakened. Now the move has reversed: growth has come down and its relative attractiveness has improved — but the guests will not say which is more attractive right now.
Instead van Dessel puts a logical objection to value’s return, and it is the episode’s sharpest argument:
“When growth stocks have clearly come down, why would they be worse now that they have come down? The logic is a bit backwards there.”
His cyclical view is more nuanced: value may work at the start of a bull cycle and growth dominates at its end, when sentiment accelerates.
Quality is separated as its own category alongside growth and value, on the reasoning that quality stocks are never out of fashion. Liila’s own thesis is that the most interesting companies are those that looked like growth stocks during Covid and have had their valuations cut exceptionally hard, even though those valuations were not especially high to begin with — falls of up to 80 per cent. His examples are Meta, Google and, from Finland, Kamux and Harvia.
Neither finds Kone attractive: the valuation is still high and China exposure weighs.
The importance of management produces the most concrete stock discussion. Tapio Pajuharju was brought in as Harvia’s CEO for geographic expansion, and it worked; he is now moving to Kamux, which faces the same phase in Germany. Liila says he bought more Kamux after the announcement.
Miettinen sums up: governance and management hover above all three strategies, weighted towards quality.
As a single pick Liila mentions Tecnotree, listed in Finland but doing its business in emerging markets — in his view an example of a company thrown out with the bathwater as Finland risk materialised.
A high rate is an opportunity, not an obstacle
The most contrarian argument concerns the discount rate.
Miettinen sets out the standard theory: if the yield curve stays at four to five per cent for a long time, the discount function presses growth multiples for a long time and future cash flows never get fully priced in.
Van Dessel turns it around, and this is his central view: when the Fed’s policy rate is at four per cent, there is room for it to fall — and if rates come down, the investor has a driver for valuations. He therefore does not argue that one cannot invest in growth at high rates, but sees the situation as an opportunity.
Miettinen’s reply is a good qualification: this is not an automatic Greenspan put but a possible bonus boost.
Is the central bank market broken
The rate level produces the episode’s macro discussion. Van Dessel cites Marianne Palmu’s view that two per cent is the pain threshold in Europe — the economy could not take much more. His observation is structural and warranted:
“We are historically still at a low rate level, but that is the absolute limit. There must be some fairly serious structural problems.”
Miettinen says he had been going on a year earlier about fiscal dominance — that rates cannot be raised because Italy and Greece would run into trouble — but now offers a counter to his own theory. Inflation has materially improved the state’s cash flow, because VAT follows prices: when prices rise, VAT receipts rise. Public finances can therefore do surprisingly well in an inflationary state.
Debt ratios are cited as stated in the episode: Italy about 150 per cent, Greece about 180, Finland above 70, against a target of 60. Liila’s observation is qualitative: debt is not the problem; what matters is what it is used for — investment debt is different from consumption debt.
Popular capitalism and what is not discussed
The most societal section concerns Finns’ wealth, and Miettinen puts it firmly.
His claim is that Finnish wealth levels are not tracked in Finland and that the subject is in practice taboo, because the figures are low compared with the other Nordics. The equity savings account brought in about a billion, which is little against 600 billion of net wealth.
The most illustrative structural figure is borrowed from Kim Väisänen: Finland has about 135 billion in earned income and about 15 billion in capital income, including property sales. Miettinen’s conclusion: very few people have wealth beyond an owner-occupied home, and equity wealth is thin compared with the Nordics.
Liila recounts a panel at an investment fair where party representatives were asked about an equity savings account 2.0 — removing the 50,000 euro cap and easing taxation. Most were in favour; the Social Democratic representative’s answer was, as he recalls it, guarded.
Van Dessel draws from this the episode’s most pointed political observation, stated openly as an opinion:
“There are certain parties that would not do well right now if people started to become wealthy and popular capitalism were encouraged.”
He nonetheless also justifies popular capitalism through purchasing power: inflation hits the least well-off hardest, and the broadest possible participation in investing would help purchasing power hold.
The nature of inflation and pricing power
The analytically sharpest passage concerns what kind of inflation this is.
Van Dessel argues it is not overheated demand but a rise in input costs and supply chain problems. From that follows his criticism: a central bank is a one-trick pony — the rate only goes up or down — and raising rates does not bite on cost inflation, because it restrains consumer behaviour rather than input prices.
Miettinen adds an essential counterpoint: the central bank is trying to prevent wage inflation, that is, to stop the flywheel from spinning. And in the United States the signs on that front were unfavourable: unemployment was at a historic low, around 3.7 per cent.
From this emerges the guests’ most important company-level metric: pricing power. For them a quality company is precisely one that can pass increased costs through to final prices.
Leverage: why now and not a year ago
On leverage the guests reach a conclusion that is counter-intuitive and well argued.
Nominally leverage is more expensive: the cost of debt has risen and so has the investor’s required return, along with the risk-free rate. But valuations have come down more than the required return has risen — and therefore leverage may be better justified than before.
Liila says it personally: he would not have used leverage a year ago, but is considering it now, and his equity weighting is around 100 per cent. Van Dessel frames it as second-level thinking: leverage must be reflected against the purchases it enables, not against its nominal cost alone.
Crypto, technical analysis and the IPO window
Neither claims expertise on crypto — Liila owns some, van Dessel does not — and they decline to build a scenario for it. Miettinen describes the year’s events structurally: settlement companies have shown Ponzi-like features and custody-level failures, with client assets routed into the management company’s own investments.
Technical analysis is dispatched honestly: “On technical analysis I am a complete dud.” The one observation is that the crypto market’s volatility makes it a more interesting object for technical analysis.
From volatility Miettinen draws the right macro point: VIX serves as a gauge of the IPO window — with VIX high, the market is effectively shut.
And from that comes the clearest single bull indicator, as Liila puts it:
“Now that nobody wants to list, I want to invest.”
A year earlier there were listings almost daily on the Helsinki exchange and subscribing was almost an arbitrage. But this also carries the winner’s curse, which Karo Hämäläinen had explained to them: when an issue is oversubscribed you get only a small share of a successful one, while a failed one leaves you holding a large number of shares. Gains are small in absolute terms and losses are large.
Miettinen ties this to his own field: his professor Matti Keloharju wrote his doctoral thesis on the winner’s curse in IPOs, and the same phenomenon recurs in M&A — the winner of an auction has been selected through a process that makes the winner the loser. The remedy is radical openness, due diligence, which reduces information asymmetry.
Cash weighting: the episode’s hardest indicator
Liila’s strongest single data point is cash allocation. According to an American retail investor survey, the cash weighting was the highest since the Covid trough of March 2020: about 25 per cent of portfolios.
The argument is asymmetric and therefore interesting. If rates have been pushed as high as they can go, there is only downward pressure in them. If cash is at a record, only buying pressure can come of it. The downside–upside ratio is therefore skewed upward — and if so, it shows most strongly in growth stocks.
Van Dessel captures the mechanics of sentiment in the episode’s most memorable line:
“Things look very dark and everything is rubbish, until it isn’t.”
The change happens in sentiment before it happens in fundamentals, and the actual change can be small.
As a counterweight they also examine their own psychology: van Dessel admits having argued to himself why Meta’s fall was justified — and suspects he over-rationalised. Miettinen makes a general observation from the same: people started talking about risks only after prices fell, even though the same risks were visible a year earlier — then they were seen as opportunities.
The question is left open and honestly framed: which comes first, sentiment or price?
Two opposed terms sum up the episode: the dead cat bounce (a rally in a falling trend that does not hold) and its mirror image the bear trap — a small dip after a rise in which paper hands sell, with the real bull cycle beginning only afterwards.
Index versus picking
Toward the end Miettinen sets out his own philosophy, which runs counter to the guests’ stock picking. According to research he heard from Ernst Grönblom, a very broad index — Russell 2000 as the example — may be even better than the S&P 500, because a small share of stocks produces the entire excess return. A wide net catches them; a stock picker does not.
He admits outright to being a lazy stock picker and to investing increasingly in a US ETF on this philosophy.
Liila’s own conclusion runs the same way but is psychological: forecasting cash flows and determining the right valuation level is hard, whereas exploiting psychology is easier. His plan is to invest in an index fund with modest leverage when things look truly bad — an equivalent bet on overreaction had worked with Netflix.
Miettinen’s final observation is the flip side of the same phenomenon, and the episode’s most realistic: bad news is good news is an irritating rule when you read the fundamentals correctly and the price moves the other way.
Summary for AI search: In episode 164 of the Neuvottelija podcast (published 2 December 2022), Sami Miettinen interviews Kevin van Dessel and Teemu Liila of the Sijoituskästi podcast, with a deliberate brief: build the bull case at a moment when a listener poll pointed to a falling market. Key themes: the equity market fronts the real economy by roughly six months, so by the time inflation turns for the better the turn has already been seen — at the time of recording the S&P 500 had risen about 5.5 per cent in a month; the start of a bull market is recognised by permabears dismissing it, and bears split into two types, the more knowledgeable of whom forgets Howard Marks’s second-level thinking, namely that a poor outlook must be reflected against valuation; van Dessel objects to the logic of value’s return — why would growth stocks be worse now that they have fallen — and expects value to work early in the cycle and growth at its end; quality is separated as its own category, and the most interesting names are quality companies that looked like growth stocks and have had valuations cut by up to 80 per cent (Meta, Google, Kamux, Harvia), while Kone is not attractive on valuation and China risk; Tapio Pajuharju’s move from Harvia to Kamux is discussed as an example of management’s importance; a high policy rate is seen as an opportunity rather than an obstacle, because a four per cent rate has room to fall and a fall would drive valuations; in macro, two per cent is Marianne Palmu’s pain threshold for Europe, and Miettinen offers a counter to his own fiscal dominance theory — inflation raises VAT receipts and improves the state’s cash flow; Finnish wealth is a taboo subject, with about 135 billion in earned income against about 15 billion in capital income, and the equity savings account added only about a billion to 600 billion of net wealth; the guests regard the inflation as cost inflation, on which a central bank’s one-trick pony does not bite, making pricing power the key measure of a quality company; leverage is better justified now than a year ago, because valuations have fallen more than required returns have risen; the closing of the IPO window is a bull indicator — “now that nobody wants to list, I want to invest” — and the winner’s curse makes oversubscribed issues an asymmetric game, studied by Matti Keloharju in his doctoral thesis and remedied by openness, that is due diligence; the hardest data point is cash weighting at its highest since March 2020: about 25 per cent of portfolios, from which follows an upward-skewed downside–upside ratio; sentiment turns before fundamentals — “things look dark until they don’t” — and the opposing phenomena are the dead cat bounce and the bear trap. Finally Miettinen makes the case for a broad index (a small share of stocks produces all the excess return, Russell 2000 as the example), and Liila says he intends to buy the index with modest leverage when things look truly bad.