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 Post subject: The WTF will happen thread
PostPosted: Tue May 17, 2016 10:46 pm 
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Hard to believe it’s coming up to the tenth anniversary of the formation of the pin. To start this, let’s deal with the generally held misconception about its birth. OW simply felt something was wrong. It wasn’t a reaction to AAM and Brendan’s attitude. It simply was that feeling and his and TUG’s effort that enabled this rather remarkable forum to exist.

OW (looks like Pierse Brosnan and a huge hit with the chicks) put a lot of effort into the place and created somewhat of a retreat for knowledgeable beings sick of the shite. And to that, he deserves a rather large toast. It probably saved a bunch of people a bunch of money. And contrary to the perma-bears reputation, a lot of the posters here seemed to do pretty good with their attitudes and are now homeowners having saved a shitload by ignoring the MSM. And very good luck to them.

I miss a lot of the posters that have gone away. TUG, Duplex and A Random Walk to name a few. To name everyone would be impossible.

Where are we though? A favourite investing newsletter of mine, the Absolute Return Letter, noted in January:

Quote:
The main part of this month’s Absolute Return Letter will take a closer look at some of the stories that I think could dominate the financial newspapers in the months to come but, before I go there, I would like to make a few observations on the Global Financial Crisis (‘GFC’), which is now in its ninth year and still shows no signs of going away anytime soon.

To begin with, a brief note. You can hardly open a newspaper these days without some commentator looking to buy fame by attempting to predict the next crisis but, as I just pointed out, the last one isn’t over yet. Therefore a far more relevant question is: What is likely to be the next leg of the GFC?

The GFC began to unravel the world as we had come to know it in the summer of 2007, when a subprime crisis in Florida, California, Phoenix and Nevada began to unsettle investors. The first Wall St. victim was Bear Stearns, which ran into serious problems a full year before Lehman Brothers did. However, at this relatively early stage of the GFC, equity investors chose to largely ignore the brewing calamity. That overall attitude continued until the summer of 2008, when the seriousness of the situation began to sink in. It all peaked in the autumn of that year, when Lehman Brothers went bust. That is now widely known as the first leg of the GFC.

The European sovereign crisis is considered the second leg of the GFC. Ireland, Portugal, Spain, Italy and Greece all went through a horrid time but Greece more so than anyone else. It is probably fair to say that Greece is still years away from more settled conditions, even if it is widely recognised that the European sovereign crisis peaked in early 2012, when Greek 10-year government bonds yielded in excess of 40%.

Now the $64 million question: Do we expect a third leg to the GFC and, if so, what will it be? First things first. We do not subscribe to the-next-major-crisis-is-justaround-the-corner philosophy that so many do. Crises of the magnitude that we experienced with the onset of the GFC are extremely rare. We had one in the 1930s, and it took over 70 years for the next major one to unfold. Having said that, another leg to the GFC is an absolute possibility; I am almost tempted to call it a certainty. Major crises like the GFC do not go away quietly; some sort of end game will have to unfold first, and that hasn’t happened yet. World War II became a much needed end game to the Great Depression of the 1930s. Following over 15 years of economic uncertainty which was kicked off by hyper-inflation in Germany in the early 1920s, the world needed something to clear the air once and for all. World War II did precisely that, even if it came at an unpleasantly high price.


So we move onto China and the next wave of grand issuance of sovereign debt to patch up the cracks in a system that is fundamentally flawed. Anyhows, just some random thoughts and will update this thread as more cynicism appears...

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 Post subject: Re: The WTF will happen thread
PostPosted: Tue May 17, 2016 10:57 pm 
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10yrs eh? Sounds like an excuse for a get together.....

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 Post subject: Re: The WTF will happen thread
PostPosted: Tue May 17, 2016 11:00 pm 
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True. Where would you suggest we all meet to discuss the coming financial apocalypse? The Marker? Nice cocktails.

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 Post subject: Re: The WTF will happen thread
PostPosted: Tue May 17, 2016 11:24 pm 
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Homemaker wrote:
10yrs eh? Sounds like an excuse for a get together.....

Well there must be half a dozen house-warming parties coming up that could do double duty...


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 Post subject: Re: The WTF will happen thread
PostPosted: Wed May 18, 2016 1:08 am 
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First of all, big congrats to OW. Not easy to create anything that lasts ten years. Maybe that colourful outlook on reality has something going for it after all. 8)

Next leg of the GFC? It seems to me that the biggest trouble brewing is the income inequality across both the developed and developing world. The GFC didn't create it -- it's been growing for decades -- but it sure as hell reinforced it. The torrent of cheap money has benefitted the "haves" at the expense of the "have nots". We're creating a generation of princes and paupers. I see people in my own age cohort and younger who have done well for themselves, and others who are horlixed. A lot of it has been a matter of pure dumb luck, one way or another. I thought things looked bad in the 70s with the ever-present threat of MAD. Somehow it's all even more uncertain now, politically, demographically, financially, culturally, whatever you're having yourself. With such instability, something's gotta give, but who knows where/when. It's like there's a veneer of normality (that the politicians are desperate to reinforce) but everyone knows the system is buckling.

My one not exactly earth-shattering prediction is that US housing bubble 2.0 will pop just like the one before it. What that means for the rest of the world, I don't know. Presumably the banking system is slightly more protected this time, but that's not necessarily better news for Joe Soap, since the "better protection" includes bail-ins. If the banking system doesn't seize like last time, then bubbles will be free to continue at their own pace in other parts of the world (e.g. Australia). In Ireland, I expect that once NAMA's work is done, and the vulture capital that has bought our office and housing stock decides the time is ripe to unload, we will have another slump. If the nutters baying for CB rules to be relaxed have had their way by then, there will be yet another generation left holding the baby when the music stops, and blaming everyone but themselves for it.

Maybe a second housing slump within a generation will finally bring about a properly cautious outlook on home ownership. I wouldn't hold my breath though. Elizabeth Warren (whose parents lived through the depression) reckoned a generational memory had to die out over 40-50 years post the 1929 crash before people started trusting things like their pensions to stock markets again. Seems we're getting increasingly goldfish-like, and the circuit of the goldfish bowl goes quicker each time round.

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 Post subject: Re: The WTF will happen thread
PostPosted: Wed May 18, 2016 1:21 am 
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Oh, and speaking of milestones, could I just say ...

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 Post subject: Re: The WTF will happen thread
PostPosted: Wed May 18, 2016 1:22 am 
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... that this is my 8000th post! 8DD

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 Post subject: Re: The WTF will happen thread
PostPosted: Wed May 18, 2016 9:00 am 
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Congratulations to OW! (And TUG). And your good self grumpy for carrying the baton. I agree that income equality is the next big thing. Don't forget that also formed a major component of the 1930s crash, the one that prolonged it since there wasn't the income to sustain a recovery in spending. Without a proper levelling of the tax field, including non-dom corporates, and a serious emphasis on wages rather than interest rates, we're going to end up in a sustained stagdeflation as prices chase wages down. I'm also not convinced that more free trade=more wealth. Finally, I reckon any recovery is going to have to be environmentally sustainable. We can't rely on an energy/materials intensive recovery what with the climate thing.

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 Post subject: Re: The WTF will happen thread
PostPosted: Thu May 19, 2016 5:01 pm 
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I can't accurately predict what will happen in Ireland let alone another GFC so I'll start here with a non-exhaustive list of what may happen someday.

We'll fumble from crisis to crisis only ever plugging holes as opposed to tearing the hole thing down and starting again. Unless of course it all falls down under the weight of our own pomposity.

Someday, maybe, the chickens will come home to roost on:
Our over reliance on FDI, cumbersome legal system, compo culture, inefficient health service, notorious lack of accountability, refusal to learn from past mistakes, our overstretched water system, manipulation of the property market, governmental policies that only aim as far as the next election.

Someday.

Whatever form the next crisis will take the fall out will be borne by the average citizen as well it should for allowing things to continue to be run as they are. The Troika may darken(or lighten) our doors once again.

On a more personal level I would like to see a toning down of our overzealous embrace of globalisation and consumerism. (I'm an engineer and love fixing things but it's getting harder with product lifetimes being ever reduced). The benefits of automation and with that increased productivity get felt by everyone and not just those at the top. Optimistically, Ireland could become a major exporter of Water in a water scarce world.

Viva la Pin!

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 Post subject: Re: The WTF will happen thread
PostPosted: Fri May 20, 2016 5:55 pm 
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grumpy wrote:
So we move onto China and the next wave of grand issuance of sovereign debt to patch up the cracks in a system that is fundamentally flawed. Anyhows, just some random thoughts and will update this thread as more cynicism appears...

Yes, yes, yes. It might be this year, it might be next year, it might be five years time, but China is going to pop. I think it's the single biggest problem that the world faces right now.

When you look at the countries that had major, major blow ups (USA in 1929, Ireland in 2008, Japan in 1989) what really hits you between the eyes is the time scale of each episode. These blow-up's didn't materialize in the space of a year or two - they were generational changes that built up over decades before imploding spectacularly. The foxy thing about each incident is that the initial part of the build up is actually based on fundamentals. The USA, Ireland, and Japan were at some stage all fantastic investment stories, countries that came off a low base to became power houses. Unfortunately, at some point though, reality gets detached from fundamentals as the situation goes into "new paradigm" mode. Instead of promulgating growth by production and investment which got progressively more difficult, it's was all too easy for these countries to turn on the credit tap. When the tap gets turned on, money got pushed into less productive enterprises, and very often into speculation. This is where China is now, and like the aforementioned countries, they've massively leveraged their banking sector to do this. You only need to look at the banking league table by size to see the growth. Chinese banks that barely registered on the list a few years ago now take 4 spots in the top 5 by assets. Did the Chinese invest well over the last 5 years? We saw how obnoxious the Irish masters of the universe were before the crash - I think the same thing is happening with the Chinese. Worldwide, they are snapping up property in the most expensive locations (look at the bubbles in Hong Kong, Canada, London). They're gorging themselves on luxury goods and cars (40% of Burberry revenue now comes from China). They're the top bidders on assets from hotel groups to football teams. They're subsidizing steel production to such an extent that the cost of raw materials isn't being covered with a ton of steel now being cheaper than cabbage. There has been an incredible amount of mal-investment in China and I think the price must be paid sooner rather than later, simply because the balance sheet can't lever up much from here. As for playing this? Well I've been playing around with some deep out of the money puts on Chinese unicorns, if it plays out, then this time next year Rodders, we'll be millionaires!


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 Post subject: Re: The WTF will happen thread
PostPosted: Fri May 20, 2016 5:55 pm 
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grumpy wrote:
So we move onto China and the next wave of grand issuance of sovereign debt to patch up the cracks in a system that is fundamentally flawed. Anyhows, just some random thoughts and will update this thread as more cynicism appears...

Yes, yes, yes. It might be this year, it might be next year, it might be five years time, but China is going to pop. I think it's the single biggest problem that the world faces right now.

When you look at the countries that had major, major blow ups (USA in 1929, Ireland in 2008, Japan in 1989) what really hits you between the eyes is the time scale of each episode. These blow-up's didn't materialize in the space of a year or two - they were generational changes that built up over decades before imploding spectacularly. The foxy thing about each incident is that the initial part of the build up is actually based on fundamentals. The USA, Ireland, and Japan were at some stage all fantastic investment stories, countries that came off a low base to became power houses. Unfortunately, at some point though, reality gets detached from fundamentals as the situation goes into "new paradigm" mode. Instead of promulgating growth by production and investment which got progressively more difficult, it's was all too easy for these countries to turn on the credit tap. When the tap gets turned on, money got pushed into less productive enterprises, and very often into speculation. This is where China is now, and like the aforementioned countries, they've massively leveraged their banking sector to do this. You only need to look at the banking league table by size to see the growth. Chinese banks that barely registered on the list a few years ago now take 4 spots in the top 5 by assets. Did the Chinese invest well over the last 5 years? We saw how obnoxious the Irish masters of the universe were before the crash - I think the same thing is happening with the Chinese. Worldwide, they are snapping up property in the most expensive locations (look at the bubbles in Hong Kong, Canada, London). They're gorging themselves on luxury goods and cars (40% of Burberry revenue now comes from China). They're the top bidders on assets from hotel groups to football teams. They're subsidizing steel production to such an extent that the cost of raw materials isn't being covered with a ton of steel now being cheaper than cabbage. There has been an incredible amount of mal-investment in China and I think the price must be paid sooner rather than later, simply because the balance sheet can't lever up much from here. As for playing this? Well I've been playing around with some deep out of the money puts on Chinese unicorns, if it plays out, then this time next year Rodders, we'll be millionaires!


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 Post subject: Re: The WTF will happen thread
PostPosted: Fri May 20, 2016 9:34 pm 
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First off OW, hat tip to your foresight in establishing the Pin and congratulations on 10 years.

Housebuyer, absolutely agree, and worth repeating :D

Agree with most of the above and especially that the GFC is far from finished. I think phase 3 is upon us with a couple more down the line. Deflation is currently in play but at some point inflation has to kick in, see linked graph from MacroTrends below (forgot how to paste a graph, someone please do if you can). If 2008 can be compared to 1920, then we are about ready for some prolonged deflation followed by significant inflation.
http://www.macrotrends.net/1466/inflati ... ical-chart

Things are not the same as FIAT currency, technology, politics, demographics, and a whole lot else has changed but each and every one of those poses as much or more threat as they do stability. Demographics in particular, as foretold by Harry Dent, appears to restrict GFC recovery short term. Technology in many ways exacerbates inequality of incomes while politics seems to be becoming the great unknown.
Having said all that, educational levels are unprecedented, access to capital also, and communication has overcome censorship in most countries.
Increasingly insular politics from the US to Thailand would seem to lay the groundwork for a lengthy economic malaise as some of the excessive globalization of past decades is likely reigned in and some of the excessive social support structures in western economies peaks.
Where it goes nobody knows but it is hard to see China avoiding a major reset, the EU avoiding social unrest and a move toward political extremes, and the US maintaining it wholehearted support for globalization. As usual, and as we are seeing, the second world economies will feel the pain with the once enviable BRIC countries all suffering together with so called "emerging markets" and of course the poorest of all keeping their status. Brazil is of particular concern with the potential for political upheaval.
Financial markets are not my thing, but the fantastic binge on cheap credit since 2008 surely has to give, no idea where it has all been gobbled up but surely the linked graph below from Market Daily News has to turn south and soon or FIAT currency will become worthless?
http://marketdailynews.com/2015/08/28/t ... history/2/

So, to summarize, and to keep on thread, no idea WTF will happen!!!! 8DD

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 Post subject: Re: The WTF will happen thread
PostPosted: Fri May 20, 2016 10:58 pm 
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Continuing the theme I began with my 2016 Dublin house price prediction, I'm willing to put my reputation on the line, go out on a limb and predict that things will most probably improve, degrade, or else stay much the same. Even so, I'm not willing to risk any more definite prognostication, except that I have it on good authority that Elvis will not return to Earth within the next year.

In other words, just like jabaar, no real idea.

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Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
Book I, Chapter X, Part II,


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 Post subject: Re: The WTF will happen thread
PostPosted: Mon Jun 27, 2016 10:55 pm 
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Alan Greenspan is in full-on panic mode.

Scotland will leave the EU - http://www.bloomberg.com/news/videos/20 ... ed-kingdom

Brexit a terrible mistake, Euro a flawed currency - http://www.bloomberg.com/news/videos/20 ... le-mistake

"we are in very early days a crisis which has got a way to go"


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 Post subject: Re: The WTF will happen thread
PostPosted: Mon Jun 27, 2016 11:08 pm 
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It is hard to see Brexit happening without a second vote.

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