Following from my previous post, here’s the second stanza, the historic rhyme..
Although the current bubble may not look the same as the Great Credit Bubble of 10+ years ago, there are troubling similarities. For one, Wall Street seems to have a penchant for inventing new speculative vehicles that come with initials. Last time it was CMO, CDS, CDO (squared and cubed), while today’s alphabet soup is ETF, CFD and SPAC. Another parallel is junk real estate/junk mortgages and cryptos.
Each item/rhyme comes with its own set of problems:
- Exchange Traded Funds are now so prevalent that they edge out most of the discretionary, alpha type investors. They are a sort of a fire-and-forget missile which lulls investors into an unthinking nirvana state where sound economic analysis goes out the window. Index trackers, in particular, are highly problematic; for example, S&P 500 is capitalization weighted, so its performance can become ever narrower as valuations of fewer companies soar to ridiculous levels. (Tesla, really?). Many tracker ETFs are also highly leveraged to achieve their stated 2-3X performance goals.
- Contracts For Difference are custom-made derivatives that give a speculator the upside/downside gain/loss without purchasing the underlying security. It is exactly what bucketshops dealt in back in the early 20th century. Today’s CFDs are also incredibly leveraged since they provide 20x or even 50x exposure. They are behind the Archegos collapse which resulted in a $20 billion instantaneous wipeout and losses estimated at over $6 billion for several investment banks.
- Special Purpose Acquisition Companies are the ultimate sucker bet: give me your money now, I won’t tell you what it will be invested in, but I will charge enormous fees upfront, as much as 20-25%. That’s exactly like London’s South Seas Bubble, to use another historical rhyme. Their popularity until very recently was eye-popping, with even pop culture icons lending their name to such questionable ventures.
- Last - but certainly not least - are cryptos, the hoi polloi’s get rich quick dream. Back in 2005-07 even strippers got into the junk real estate game, hoping to make a fast buck. They were enabled by no-money-down sub-prime mortgages and a whole network of brokers, lenders, packagers, bankers, rate agencies and insurers. Likewise, today’s foam at the mouth crypto speculators are enabled by app-only brokers, specialty exchanges that operate 24/7/365, pithy “analysts” that predict the demise of national currencies, and even mainstream investment banks who are watching the billions go by and are itching to grab their piece. Carnival barkers (nice doggy, literally) also abound.
Ok, that’s it for the second stanza - except one more observation: the Archegos disaster is already acting as a catalyst for leverage caution, just like the very first problems with mortgage originators and lenders caused concern back in early 2007.
In the next stanza I will look at the more intangible rhymes, those that deal with anecdotal evidence such as 12 year old speculators, tokens, virtual art, NFTs, and their historical counterparts.
CFD's are not allowed in the US though Hells, is Wall Street into them anyway?ReplyDelete
They are not allowed for US residents, but the vast majority of funds etc are incorporated abroad in tax havens anyway.Delete
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there blossoms in the dark a rose,ReplyDelete
red are its petals,
green is its stem,
but who can see the colors of the dark.
A rose by any other name,Delete
Is it still a rose?
laugh... and the fact that the question has yet to be answered means sometimes yes, sometimes no?Delete
the stock market crashes... the buildings stand, the people are still there... yet men starve to death...Delete
Japan was bombed flat... the male population wiped out, yet the country rose like a phoenix.
In the world of men, ideas rule over material... or do they?
Man does not pursue money... he pursues aid to the community around him and recognition for that aid. Money is the measure by which we as a community recognize his contribution.ReplyDelete
What than does it mean if we reward people with money for things that do not aid our community. What does it mean if we print money. Until the pursuit of the best things in our community is now considered so evil that money is now the root of all evil.
What happens if we glorify the evil by calling it good? The bible makes sense now.
Woe unto you who call good evil and evil good.
The bullishness on the S&P500 index out there is just amazing. It's like a paradigm shift upward repricing, with markets stuck upward.ReplyDelete
...when there's a retrace it goes straight down, and when it rebounds it goes straight up, plus some.ReplyDelete
yeah... let the dice fly... =)Delete
There ought to be another better system going forward. The Western one has done many good things in recent history but is a relatively new one. It has also shown that it is not sustainable unless it reforms structurally which is almost impossible under the current setup. It may be time to look East to places like China and learn the good ways while discarding the bad ones. But alas, the western hubris is too strong at the moment and is preventing such logical thinking. Short of war, hypocrisy and unsavory tactics to contain other rising powers, the US is devoid of any long-term strategy to break out of its predicament. It is akin to a sinking titanic.ReplyDelete
there is still much to learn from the west... let us seek to learn rather than teach, seek to understand rather than preach.Delete
Was thinking of what you said. There is some truth in it... especially the need for a better system. However, it is not good to mix arguments with heavy nationalism. This is a house of many nations. While it is understood that each favors his own, it is impolite to write strictly from that view-point.
The U.S.?... They are an exception because they built the current system and Hell is our host. =)
Was reading a new-york times article about the virus in Latin America. Would you say this is accurate? An exaggeration? or not as bad as it sounds?
I'm in Mexico City where Covid is now relatively under control akoc. But the issues that the article brings to light are spot on imo. Big inequality has always been a problem, and Covid exposed it even more... it's impossible to tell a street vendor or subsistence wage worker to stay at home for long periods of time.Delete
aye... somehow the wrath of God always seems to land on the poor.Delete
i always loved the traditional protestant answer to that. bad things happen to the poor because they deserve it. Else why would god make them poor?
guess the Brazilians must have been really bad people.
btw, why is Mexico city different. Because it is richer (and thus more righteous)?
:( oh no, Mexico City has massive urban poverty, not different at all! But, re: Covid, the population is more proactive now taking more preventive measures. Or who knows why, but the hospitalization and infection rates are now lower.Delete
...I think bad things happen to the poor simply because the very condition of being poor excludes them from basic services and opportunities. It's expensive to be poor, they end up paying more for basic items. The system is designed to work for the rich; but for the poor, not really.ReplyDelete
laugh... got me thinking.ReplyDelete
What if we made it expensive to be rich?
Like we have a global consensus among people. Each time Bill Gates takes a taxi, it cost him a million. Each time he cuts his hair, it cost him a billion...
If those jokers can print money that we work hard to earn, we are in our rights to refuse their money. Wouldn't that be fun. =)
Lol!, or tax them at 95% above 250 million. And no deductions allowed above 250 million.Delete
...Bezos would still be worth >10 billion.Delete
they control the political system... we can't touch that... but there is power in the people... this is a new form of strike. =)ReplyDelete
btw, give some more useful info... I was talking to a guy I know in India.ReplyDelete
He says that the mutant is much more infectious than the previous one but it is very much less deadly.
By his estimates, half the people in his city are already infected... if we go by half the population being infected, the death rate in India is actually quite low (percentage terms).... and the Indians are going to obtain de-facto fully immunity very soon.
Summary... this Indian thing may be less serious that it seems.
Problem is, on a human scale, the numbers are so big in India, that even a 1% mortality rate or a .5% rate translates into millions :(Delete
problem is there are too many humans. =)Delete