WHAT IS GOING ON?!?!
https://www.mauldineconomics.com/frontlinethoughts/the-growing-economic-sandpile You will likely read a lot about "black swan events" in the coming weeks and months. This phrase was coined by Nassim Taleb to explain how we can't predict what bad shit will happen. Nassim Taleb is a fucking dumbass however because he goes on to jump from "we can't predict what bad shit will happen" to "we can't predict THAT bad shit will happen. Literally four pages into Black Swan he argues that nobody predicted Hitler therefore nobody could have predicted WWII. The problem with this thinking is that one of the fundamental arguments at the Treaty of Versailles was that excess punishment of Germany would lead to recriminations and that harsh economic conditions would likely lead to a resumption of hostilities. Both Churchill and Wilson argued that bad shit was likely to come out of Germany and launch the war again. They argued at length, they argued publicly. Taleb's right - nobody predicted "Hitler". But that doesn't matter because half the people paying attention predicted "a phenomenon like Hitler" and does it really matter what his moustache looks like? German encirclement was a theme going back to the fall of the Hapsburgs. German antisemitism was a theme going back to the Crusades. German nationalism was a theme going back to Napoleon. Populist racism leading to apocalyptic war? It was on a lot of bingo cards. It's been unpopular to argue that all isn't well just because the stock market goes up. There hasn't been a lot of press for everything that's wrong in the market. It's all there - the data's right where you can see it. This whole repo mess that nobody is still talking about is fundamentally the central banks losing control over the market but why talk about that if the Dow is up? So yeah - Saudi Arabia needs money because Aramco is now under IPO and there's convincing evidence that they hit peak oil in about 2001. Russia needs money because their population is aging and they've got a $300b budget shortfall (how quaint). They're in a three-way snit with Turkey over Syria right now - Saudi Arabia and Russia could make an agreement but Turkey is putting up drilling rigs in contested waters around Cyprus so it's pretty clear to anyone paying attention that an agreement between the two of them would be short-lived. But nobody is paying attention because this is a "black swan." John Maynard Keynes argued there are two ways to assess what something is work: "Firm Foundation Theory" and "Castle in the Air Theory." Firm Foundation Theory posits that something is worth the amount of money it will make you, adjusted for the risk you take on buying it, minus the amount of money you can make risk free. "Money it will make you" is a basic thing to approximate. "risk you take on" can be approximated a whole buncha ways. You end up with a number, or a spectrum of numbers, but fundamentally you end up with a reasonable model of value. Castle in the Air theory posits that something is worth what you can sell it for. Firm Foundation Theory has had no place in economics since 2008. Ever since central banks pumped all their money into the financial sector, there's been no good way to determine what something's worth because the central banks are maybe/maybe not guaranteeing some portion of that risk. Bear Stearns? No backup. Washington Mutual? No backup. Chase Manhattan? The Fed will pay JP Morgan to buy it. What's a bank worth? Who knows. Comes down to what kind of mood Bernanke was in. Pissed a lot of people off. But you still gotta make money. So you value everything on what you can sell it for, not what it's advantage over risk-free return is (it helps that your risk-free return has been "under inflation" for twelve years). "I'ma buy into WeWork at $40 billion because some dumb asshole will buy it off of me for $80 billion." "I'ma buy into Tesla at $700 a share because some dumb asshole will buy it off of me for $900 a share." "I'ma buy into Amazon at $1000 a share because some dumb asshole will buy it off me for $1500 a share." Amazon is allowing profiteers to gouge Purell at a thousand percent and this populist government is failing miserably. Suppose Bernie Sanders wins the election and decides to break up Amazon? Is it still gonna be worth $1500 a share? Because Amazon has never paid a dividend in their life. their business model is literally destroy everything, become the one store in the universe, profit. So. Did a whole bunch of prognosticators have "pandemic" on their bingo cards? doesn't matter: 2. The most important dimension of the slowdown will be the increase in social instability, which was triggered by the 2008 financial crisis and ameliorated in recent years but will now accelerate. Internal tensions in many countries are already underway and will become more intense and less manageable in 2020. 3. Nations most vulnerable to the slowdown will be exporting nations. The countries that will be most destabilizing to the global system will be major economies that are dependent on exports. Germany and China are the most vulnerable and will have the greatest impact globally. It's like a forest fire - it doesn't matter all that much if it's a stray cigarette or a badly-grounded hot tub that sparked it. When the whole place is dry tinder, it's gonna burn eventually.1. Economic dysfunction will be the main driver of the international system in 2020. Economic stress does not simply flow from whether the economy grows or declines by a percent; it arises from shifts in the pattern of economic behavior. This in turn affects social realities and leads to political instability. Growth may continue, but a dramatic slowdown in growth can have significant consequences. We forecast a slowing global economy.
Like, legit? I hate the Black Swan argument and I've only known about it for about a week. It's people's way of saying "we didn't see this coming, so it's not our fault, so it's not fair to get mad at us." I'm glad you used the forest fire analogy, because I was gonna use it myself. You can't build houses in a forest and not expect them to be at risk of fire. You can't develop in a flood plain and not expect to be at risk of a flood. You can't build on a seaside cliff and not expect to fall to erosion. For the stock market? Don't pay for stocks for more than they're practically worth. For businesses, don't dance with debt you can't pay back. I don't know what everyone is thinking, but I'll tell you this. Spring is hiring season and between coronavirus and a possible recession, my prospects of getting a new job just turned south.
And so it begins: Scott Minerd, Guggenheim InvestmentsWho could predict the exact chain of events set off by the coronavirus that leads us to the circumstances that we face today? Besides the public health and economic crisis, would anyone have considered that this would also turn into a geopolitical crisis? Russia is attempting to use this critical moment to its own advantage, and the collapse of the Russian-OPEC alliance—precipitated by Russia’s goal of killing off the U.S. shale industry—has turned into an all-out price war that is causing chaos in the energy markets.
. . . yeah. I'm in the process of spring cleaning to destress. The markets had an upswing this morning and now they're back down and I'm just uncomfortable so I'm trying to control what I can, which isn't much. I consoled myself this morning, that if I don't find a new job, I'll keep this job and then start slamming money into my 401k when the market recovers. Which is saying something, cause I think they're fed not by markets, but misery, including mine. But if I'm gonna be miserable, might as well make money off of it. I'll fight for every hour, every penny I can, just to feed it. Two anecdotes. On Saturday I was talking to a friend of mine who's just past old enough to drink, telling them I've been doing math trying to figure out how I'm gonna be able to survive 60plus financially, if I even live that long. They asked if I figured anything out. I said "Yeah, I should have started when I was your age." The other day, I did a checkup call on my mother. We were talking jobs and retirement and she said I shouldn't bother, because by the time I'm her age nothing will be worth anything. She was joking, of course. Then Friday and Monday and Today happened and suddenly my mother's joke isn't funny anymore. Nero fiddled while Rome burned. I don't have a fiddle or a city-state to look after. So I guess I'll shred junk mail and chastise myself for buying more fabric than I'll probably need for the next five years. I found a really crappy jacket though, all torn up, I might turn it into a project, so I have that going for me.
Yeah hospitality is going to get kicked in the nuts which means retail is going to get kicked in the nuts which means commercial real estate is going to get kicked in the nuts which means banking is going to get kicked in the nuts which means we're in a recession we just don't know how bad yet. I'll say this: 60 million people in industrial China were under lockdown for a month. There's going to be an impact from that. Everyone was going "we don't know yet" while also going "buy STONKS!" Presume China contained CV19 entirely. That could easily have been enough of a spark. Instead Italy has been cancelled through the beginning of April. 8th-largest GDP in the world.
How much is America's economy propped up by consumer spending? Like, all of it? I can't imagine, if people aren't gonna go to work and get paid, or even if they get paid but they don't go out, this is gonna be a real hard recession to turn around just for that. I'm worried. Not about the stocks mind you, but about people. Recessions hurt.
