Michael Pettis sums up the Wuhan flu risk for investors

When a couple of tweets are worth a thousand words…

Or the Australian syndrome.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. I think the same is true for most individuals in finance and investment. The industry is full of bulls because the majority of the time the market is rising and if you are defensive then you underperform and drop out of the system.

    • Correct. Plus, you won’t have flexibility or independence if you manage somebody else’s investments. You will certainly perform worse than when you manage your own investment as a result.

    • That’s right. There Is No Alternative.

      You either try to win running with the crowd, (accepting the risk of being blown up and losing out)… or you can be a looser and guarantee losing out by sitting out the game out altogether.

      There Is No Alternative.

      Unless you’re big enough to influence the structure of the game itself…. and most who are, aren’t game.

      • mikef179MEMBER

        “loose monetary conditions” is the key. If the central banks could, somehow, be made to do the right thing then would it be as much of an issue? I saw a video on the weekend where a Fed Reserve chairman (I think from the 50’s) said the Fed’s job is to remove the punchbowl when everyone is having a good time (or something like that). How you actually force that to happen though is something that I don’t know.

        • No, “loose monetary conditions” is not the key. It just happens to be the current/recent environment.

          The real message here is that, unless you’re truly really exceptional and lucky (and strong), you have to take the game as you find it. If the current game is around loose monetary policy – so be it. If the game is tight monetary policy, so be it.

          Free trade, tariffs, taxes, gold money, credit money, etc, ditto.

          The game that exists is the only game. There is no other.

          And those who don’t join will be either discarded or coerced. ‘member the steps taken to “open up” China to trade with the west, back in the day? And how India got dragged in?

          • As I say, Joe:

            you can be a looser and guarantee losing out by sitting out the game out altogether.

        • ” loose monetary conditions” is the key, yes. It’s actually pretty much key to everything that is wrong – from the leverage (almost everywhere) to the structure of our economy. When an unelected and unaccountable committee of people can allow unfettered creation of credit then the disaster we’re seeing unfold right now is inevitable.

          This is why something like a gold standard is desirable: it removes all money-related decision-making from human beings and limits indebtedness – in both private and public sectors.

  2. david collyerMEMBER

    Geared balance sheets work a treat in a rising market. They are a recipe for disaster in a falling one. Reusa and his ilk withdrew before the final climax, while publicly claiming to be ploughing on.

    The trick is to clearly see ahead and position accordingly – not two steps, just one.

    This is hard, really hard in a time of Corona virus-induced collapse.

    Good luck!

  3. Stewie GriffinMEMBER

    This behavior has always been the case in the economy – debt and shortermism always ended in such punishment. The difference this time is that our NeoElite now see the problem not as the improper use of debt, but as the risk that the debt won’t be repaid and will become worthless…. sort of the complete opposite as the previous paradigm.

  4. Yes, this is particularly acute for Australia. 28 years or so without official recession has produced the idea that certain risks aren’t risky … and it is until all of a sudden the event turns up. Gearing into investment property for example. So we breed out the conservative and produce a generation of Captain Riskys who then say whocoodanode when things go south. Just as true as for management teams who get rewarded for taking commercial risks riding the wave.

  5. Leveraged Debt, combined with Central Bank bailouts is the insidious disease we ought to be fighting, not wuflu. The moral hazard has become fatal to our existence as this unrepeatable debt brings forward so much consumption and poisons our planet with no thought to the externalities.

    • In a word, yes, totally agree.
      It’s really, really hard, and as several above have stated, ‘loser material’ standing your ground in this world where everyone believes the opposite, and is more lonely than lockdown!
      The emporer has no clothes!

  6. Goldstandard1MEMBER

    Here’s the thing though. Something was always going to PRICK the bubble. A virus, a banking shock, a trade war etc.

    That game cannot go on forever-even the biggest bulls said that. Everyone acknowledged it- it was a matter of if a big macro shock was going to hit sooner or later. The masses bet on later and played the game essentially HOPING it wasn’t soon.

    Guess what, it’s not soon, it’s NOW.
    People who gambled way too heavily are going quickly,
    People who gambled moderately are nervous and still hoping,
    People who didn’t gamble much were not getting the riches the Jones’ were, but probably feeling pretty comfortable now.

    Gambling (too much leverage) doesn’t always win, and it only has to clean you out ONCE.

  7. …but when underlying conditions reverse, instead of higher-than-expected profits, these businesses suffer higher-than-expected losses, with lower revenues being reinforced both by rapidly rising borrowing costs and, if the risk of insolvency rises, by rising financial distress costs

    Can see path to insolvencies rising (and their flow on costs), but not the borrowing costs given all the CB free money sloshing around. There any evidence of “rapidly rising” borrowing costs actually happening on a broad basis?

  8. working class hamMEMBER

    I think the Jones’ have a lot to be ashamed of. They make society feel demoralised, with expectations that are unachievable.
    Hard work and sacrifice don’t pay as well as gambling.

  9. Property debt has been the big gamble that has paid handsome winnings for the last 60 odd years.
    It has made idiots look like geniuses, and geniuses look like idiot losers.
    Nothing stays the same though. I always knew my 1910 born grandmother had taught me some useful insights into frugality