Baruch periodically, at times of market stress, records his macro thoughts and impressions, more as an aide memoire for himself than anything else. It’s good to come back later to see what I thought at a particular moment.
This might be the occasion to have another go at it.
Contra the more sanguine amongst us, Baruch is more worried about the macro than he has been for a while. At times before he has always had a sense of why the bears can be wrong, be it China consumer growth, a housing-financed consumer boom, Quantitative Queasing, a new product cycle in technology – even if he hasn’t actually believed it himself, he can see how others could, and frankly that’s all it takes sometimes. This time around the bulls’ cupboard seems a bit bare, and this monumental debt-deleveraging thesis the perma bears have been clarting on about all this time seems, frankly, to be one of the best explanations around to explain what’s going to happen to us all.
In fact the ONLY problem with the bear thesis here is that it seems too easy, too based on an analogue of 2008, in my mind, to be probable. Not that the analogue is unconvincing. Like now, the summer of 2008 was also a time of signs and portents outside the action in debt markets (now sovereign, then subprime), if you were watching closely. High multiple stocks and semiconductor companies and their suppliers were quietly blowing up. Baruch’s stocks started giving way later in the summer slow season (which is where we are now) subsequently rallied briefly, then totally collapsed with the rest of the market in September and October post Lehman.
In Baruch’s experience history is a bad guide; there’s always something different the next time around. Ask the French about the Maginot Line. This crisis will likely be better or worse than the last one, in different ways.
So anyway, this is Baruch’s current internal dialogue:
- OMFG we are so screwed! It’s just like 2008 again. I’m going to stick my head in the oven, even if it’s electric. It’s like all those newsletter writers say, we’re groaning under the weight of a massive debt burden which will take a generation of low, no or negative growth to get rid of. You seen Tracy Alloway’s AAA rated debt chart?! This isn’t the banks going under, it’s the people who bail out the banks, and once they’re gone the banks will go anyway. It’s an order of magnitude worse.
- Chill baby. One word: Policy Response. We’re used to this now, and we know how it ends. No one’s dumb enough to let Lehmans happen again on their watch. The Single Market and the Euro are not just the most important economic policy initiative of Europe’s governments, they’re also the most important part of their national security and foreign policies. They’re not going to let that go without a fight. The ECB is there to defend the Euro, and when that’s finally under threat they’re going to step up, or they won’t have jobs. And ultimately, Bernanke’s got our backs — after a decent pause we can have another dose of QE, and I have to say I enjoyed the last one a lot!
- Wise up, dude. Fiscal is blown up. S&P and the Tea Baggers, whatever they’re called, seen to that. Don’t expect the Germans to get their wallets out any time soon either, they’re probably enjoying themselves too much, lecturing Southerners about Teutonic probity, and selling Euro-denominated Mercedes Benzes to Chinese people who can’t believe how cheap these things have become. Monetary’s all we got, Trichet’s heart isn’t in it and the operative clause with Bernanke is “decent pause”. The only thing scarier than not having QE3 in this environment is getting QE3 straight after QE2! What would that say about the state of the economy? Homicidal Zombie market eating your brains. Another good word would be “Money Illusion”, no? Bernanke’s got to wait, maybe until Q1 next year if he’s going to be in time for Obama’s re-election. And sufficient damage can be done within that “decent pause” to make last week seem par for the course. As TRB Josh puts it ,”think 1938, not 2008.”
- What’s wrong with you? You LIKE being miserable? You’re like one of those dinner party bores, oh so wise about how terrible the state of the world is, so wise he kept his portfolio in cash after selling out in January 2009. Last week is just normal seasonality, admittedly a bit spicier than usual, but exactly what you expect in the summer after the Q2 results. And each time there’s some flipping moaning Minnie going on with your “oh we’re all doomed”. We’re down not even 10% from an 11-year peak – 11 year! — in the NASDAQ, and you’re saying that was it, it’s over? You got no basis for that yet. Important parts of the world are growing great, consumer spend in the US doesn’t seem too bad so far either – you seen Mastercard’s result the other day? – and so what, some spreads widened? When the US was going to get downgraded on Friday everyone went and BOUGHT 10 year Treasuries! You have to rethink your definition of a crisis; you’re traumatised, jumping at shadows. Nothing really bad has happened yet!
- Oh man, are you complacent. When they bought them they were freaking out that there was going to be a recession. The fact they had to buy bonds that they know are going to be downgraded shows how screwed we are!
- You’re an idiot. Go over-intellectualise and wallow in misfortune. Me, I’m getting me some stocks.
Anyway, that’s as far as Baruch can go. Where are you at?