We wait

Climate change is happening, and yet we wait... lack of political will to suffer I believe.

Similarly, what do we know?

1. That central banks the world over are beginning to nationalize. I think it is simply that - - it's a matter of one pocket instead of the other. Rather, the developed world is nationalizing its assets - - debt, and in Japan's case - equity of companies.

Truth?
I dont think its more complex than that - - I have reached this opinion based on the last 5 odd years of reading and thinking.

2. There is a crazy bubble in China. People are incentivized to invest either in trusts, WMPs or real estate. How do they have the money to invest in real estate? (Oddly this is one topic I dont read much of... who is financing the home buyers?)

Do housing bubble always pop? or do they at times, gradually deflate?
Gradual deflation of bubbles dont create juicy stories or mania - - I believe they tend to be under-reported. A gradual deflation could easily happen, where people begin to realise that other assets make more sense.

That said Chinese equities also seem quite expensive - - not on the main indices, since they tend to be SOEs; but rather the more privately owned companies.

This is unlike companies in Korea or Japan - which are still relatively cheap.


Another odd facet of China is that - there are some spirits in the economy at work. Chinese goods can be very good quality, services too - and consumption does not seem to be trivial.

Truth?
All in all - we know that there is overinvestment, overcapacities, state-support, financial repression juxtaposed against good brain power, ingenuity, and the willingness to take risks and invest internationally - and in turn get good talent.


3. There is immense friction in the EU. Countries are getting sick of each other (either because of politics, immigration, jobs or economics), and yet seem joined. But one day an Einstein will come by with a beginner's mind and say - the emperor has no clothes; that leaving the EU and the euro aint too bad; after all, things were fine before the euro came into being.

Truth?
A member will leave, and the domino will start. And finally - a country will be able to re-orient itself to its actual competitiveness... Companies will suffer, and companies will become stronger



The hilarious thing will be - in 2019 or 2020; people realising that there was no great deflation, there was no great inflation, and the world just kept muddling along.
We are the all singing all dancing crap of the world

What do we know, what have we learnt

This is from the movie Go, Goa, Gone - where 3 idiots are being chased by zombies.
Applies quite well to the investing world.

I asked this to a friend today...
Any intelligent thoughts on how bad things can get wrt global central bank action and bond markets, and cost of funds?

I ask because it seems similar to 2006-7 where people began knowing there is some kind of a bubble, and that housing prices are not sustainable.
Of course, it took another animal to eventually cause a large scale problem.

Similarly, today, people know about the China overcapacity, real estate bubble, capital flight and bad loan books - and also know that global bond yields are in uncharted territory and central bank balance sheets are becoming absurd.
And yet, people are behaving as though trouble is still far away. especially since there is no real euphoria
..
____

And my answer to my own question made me look back at 2007.

People knew about the bubble, and even if they knew about CDSs and the network of assets and liabilities and the illiquidity of the market, etc. - - even then, the best of the best would have said :

AIG, Bear, Lehman, GS are gonna go down - unless they react quickly enough when the losses or illiquidity strikes. But I dont think things are gonna be too bad - -
It will be a bad recession, and just like always the Fed will stimulate the economy and after sometime, we should start becoming fine.

What happened was that many more companies faltered badly - either because they were directly exposed to these assets (or liabilities) or because their network of companies or customers were overly dependent on good house price, or good paper prices or more importantly, access to the credit markets.


Today, I say that this global bond bubble and central bank nuttiness where every economy is trying to stimulate the economy, EU is trying to hold on, China is trying to contain the mess... one, some or all of these things will lead to the next panic.
The next panic is a certainty, the when is not and the extent of it is not.

But, in 2008, a lot of countries were relatively fine even though global growth deteriorated.
Similarly in 2016 or 2020 - a lot of companies and countries will be fine, and might in fact be antifragile and become better.

The key is to understand - that if commodity prices go way down, or global credit markets freeze, or currency volatilities shoot up a lot, then, an exporters of shovels to a global industry will suffer - - but as long as he is better than competition, he will come out stronger.

A provider or desirable goods or services will suddenly find that people are not spending - but if the product is good and becomes better, the consumer will come back.


____


The worrying aspect is that all this is predicated on no major global degrowth.
The third curve - a book by a movie director - opened my eyes to the fact that humans have begun taking growth for granted when in fact a significant erosion in confidence can easily destroy the human ability to spend.

I am back where I started.
Scared, cognizant but the music is playing - hence I dance.

Statue!

The old childhood game.
I feel like a lot is crumbling about us, and all we can see is pro-India stories.
The invisible Gorilla :)

If China is indeed hiding its true capital outlfows, what does it mean for the world?
WB has often said that macro does not matter - and yet he has shown that he stays cognizant of it.
Move forward but with caution is what Howard Marks has been saying.

If China is indeed unable to control its currency, and there is a capital flight (which is actually happening even today), its usually disaster for an economy that does not have a globally tradeable currency. It has happened in Russia, Argentina, The Asian crisis, India, etc.
You start running out of reserves, means you start running out of reserves until there is a crisis - like how Soros thinks about these things. Reflexivity and effects of effects.

What if someday soon, the world realises that China's actual growth is 3% or that its capital stock has been devalued via weakening currency/ recapping the banks (aka the system) - oddly enough, nothing changes except forecasts and expectations.

Does that mean that tons of capital flows to the US? And may be Japan (which Japan hates oh so deeply)?

How does any of this affect my companies?

Volatility and uncertainty always take a toll. When the global investment and consumption machine stalls (recession) it causes effects.
That said, The world has gone through nutty times, and every few months, for the last 100 years and more there is always something around the corner.
And there are always corrections, and at times longer recessions; but as long as we like chocolate, and cars, and entertainment and pizzas, and air conditioning, the world goes on.

All this said, I wonder if a domestic economy is capable of weathering a global storm much better simply due to its own demand for stuff.

We live in fun times, and here I am - very sure that a correction is around the corner - Nifty 8350 - and yet, I stay invested because my companies are good, still cheap and seemingly resilient.

Forward, the Light Brigade!

I knew it

All crashes or dislocations or recessions are followed by: These few people saw it coming.
What makes the current global events odd is that everyone knows about the negative to low interest rate problem that is pushing every saver to invest in faltu assets - trying to chase yield - or the China real estate boom and the bad asset pile, and how theie forex reserves are depleting, etc.
Japan cant control its currency, and Brexit may cause the eurozone countries to begin leaving the Euro.

There was a great piece on MLPs recently - people like yield and they forget the safety of the principal.
And Gross made a sensational tweet about how low interest rates are gonna blow up like a supernova.

A lot of big funds are super cautious and are holding onto cash.

So, what does all this mean?

Again, I turn to Howard Marks and say that the pendulum of collective human emotions is towards cautious and not towards euphoria.
Agreed that there is a herd movement towards higher yield - be it junk bonds, structures, emerging markets, etc.
That said, commodity prices are still super low -  - but China has yet not wound down its bubble of commodity demand and supply.


I strongly believe that a few months from now, or hopefully, a few years from now, people are going to turn back and say - Man, we saw all these things happening and we ignored them.

I wonder what WB would say?
Make sure that the business can always make it through any downturn - that is all that an investor needs to worry about. The business.

Begin Again

I had decided to hide my blog, for over a year now, but I guess it's time to write a little bit here and there.

I believe that prudence pays well, and I have been cautious for over 3 years now.
The mess in China is unbelievable, and the global monetary mess more so.

Negative interest rates, crazy excess capacities to produce stuff based on potential demand, may be aliba bah is fabricating its sales, may be currencies are bound to be less volatile henceforth than they have been in the last 2 years (remember the CFR, ZAR, Real, ruble) and I wonder whats going to happen to the CNY or the middle east currencies (who cares about names, right mr. feynman?)

The objective of an investor is to understand irrationalities, while also believing in the power of being a part owner of a business; the access of marketability makes fools of us, and that simple concept is difficult to grasp.

Many shall be restored that now are fallen, and many shall fall that now are in honour.

Running businesses well is difficult.
Consistent business performance is an anomaly.
But people have an inherent need to do something everyday and feel worthwhile.

Ruskin Bond has influenced me.

Here's to going for a nice walk and ruminating while people pull out their hair - and I will return, the pig farmer who visited the exchange only when the pendulum reaches its boundaries.
It's a difficult ordeal this - waiting.