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.
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.
