Skip to main content

So what's really changed and why the panic

Its like the movie Airplane, when the overhead seat belt signs in the aircraft indicates:  Okay Panic. Being honest for a few minutes with ultra low interest rates, and weak(ish) world economy (US seems to be doing OK, but Europe and Japan are not) and a slowing China (maybe not slowing as much as growing less quickly), the world is not really floundering, its just not performing.

So what has really changed is volatility -- it could be a sign of something else, as it could be just a bout of volatility because there are changes afoot:

  • Oil prices are falling again -- accelerating the shift of ressources from producers (of oil) to consumers; a far more diffused group than the oil producers.
  • Fed Chairman has indicated that interest rate hike(s) are on the way, that makes bonds "one way bet for the past 20 years" done and gone.
  • China -- well the government seems to have lost control ; and has decided that the stock market was a proof of economic virility!  What they do next is anyone's guess.  But when you start arresting investors for doing their job, its a slippery slope
  • Europe (Greece) is showing the limits of democracy -- will the ECB intervene in all European election, when funds will be "held up" until the electorate makes the right decision?
  • Inflation is nowhere to be found (except in assets!); the working class has no pricing power -- and with no pricing power there's no possibility of inflation; median wages are still falling in America (they have been falling since the mid-80s).
  • The US primary process are showing a very ugly side to the American electorate -- who know there were so many racists and bigots there?  Apparently 63% of Trump supporters believe that Obama is a secret muslim born in Kenya (and that's true for 50% of the Republican party members)
When the 2008 credit bubble imploded what amazing everyone in the financial sector (include me) was the extent of the lies; we all assumed that portfolio sellers were "massaging" their portfolio a bit, what we didn't know was that most portfolios were total B.S. because everyone down the line was lying; the mortgage generator where lying, the aggregators were lying, the arrangers were lying. Think Sadam's WMDs where he convinced everyone in his country that he had WMDs.  The USSR in the late 80s, was lying to itself on its productivity, because if you didn't meet your target you got sent to jail! 

Bottom line there are real risks out there that present potential market down scenarios; and investors are freeking out, because after 6 1/2 years of market growth everyone is expecting a correction.  You don't have to be a genius to figure out that there's a huge bubble in the tech sector; many eye watering valuations are based on the same B.S. that was a feature of the  2001 bubble (then it was clicks) now its the number of (unprofitable/free) customers.  The Grill cheese Truck [OTC:GRLD] is the most insane example, but some of the valuations of Airbnb, Uber and others make no sense and little potential for real profits, and don't get me started on Amazon which has NEVER made any money (in a full year).

Anyway, enough of my rant, the only guys that are happy right now are those trading the VIX, banks are pissed because their portfolio just got more expensive to hold (in terms of capital) and harder to hedge.  So to Bill who's been trading VIX for 10 years, its finally your day in the sun (assuming you got it right).

Will the market crash, lots of punters are worried, there's always one "well respected" analyst or fund manager that says its time to buy gold, or go all cash.  The one thing I know for sure, don't panic.

Note:  no position on Amazon, Uber, Airbnb or GRLD.  No VIX position either 


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…