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Mark Spitznagel says the ‘greatest credit bubble in human history’ is set to pop
- gchokov 3y agoAll of the doomsayers are once in a while right..
- PartiallyTyped 3y agoBears predicted 21 of the last 3 recessions; and if you tail a car for 500 miles you will give it a ticket.
- thih9 3y agoBut does it happen in a statistically significant way?
- H8crilA 3y ago2s-10s is remarkably accurate for predicting recessions. For returns over 10 years or so CAPE is quite good, stocks/(stocks+bonds+cash) is very good. But you cannot make statistical claims about such numbers, the calculations are done over the entire very small population (if you want to abuse the maths a bit and call a time series a population), not over a sample.
- ProjectArcturis 3y agoThere is very little difference between being early and being wrong.
- H8crilA 3y agoDoom prophecies aside, I do think that some deflation protection in the form of US 10 year bonds (or longer, if you have the stomach for it) may be a wise idea. The 10 year yield hasn't been this high since before 2008, offering a decent upside should we get back to the low rate regime. Although of course if this is a 1960s or even 1970s replay then these bonds will cheapen to single digit cents on the dollar. Chart for reference - always good to keep in mind the big picture: https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart https://www.macrotrends.net/2016/10-year-treasury-bond-rate-...
- andrewstuart 3y agoDoes Mark Spitbznagel run a hedge fund, perchance? It’s never a surprise to hear bad news from people who make money from bad news.
- yieldcrv 3y agoor a gold bug, who gives bad news but never makes money from any macroeconomic environment
- SideburnsOfDoom 3y ago> Does Mark Spitbznagel run a hedge fund Well yes, it's in the actual title of the article.
- andrewstuart 3y agoI wrote the comment before I clicked on the link.
- SideburnsOfDoom 3y ago> I wrote the comment before I clicked on the link. yes, and it shows. This is an example of why it's generally a bad idea.
- andrewstuart 3y agoBut I was perfectly correct! I saw the super doom and gloom headline and thought “hedge funds trying to engineer a crash”.
- SideburnsOfDoom 3y ago> But I was perfectly correct! So what? Are you saying that it was obvious, or that your comment added nothing unless you haven't even glanced at the article? I think both are true. A better, less "low effort" comment would be e.g. "On checking the article, I had no surprise that it says that Mark Spitznagel runs a hedge fund, because ..."
- NovaDudely 3y agoI have heard this every month for the last decade.
- deleted 3y ago[deleted]
- madballster 3y agoSpitznagel runs a fund that specializes on so-called "tail-risk events", i.e. he profits from extremely unlikely economic scenarios such as hyperinflation or violent economic crashes. He profits more the more assets he has under management, because he charges his clients a performance fee of probably around 20% of profits. So part of his job is to constantly find new investors by telling them that the worst economic crisis is just around the corner. And how he he just happens ot have the right solution.
- atoav 3y agoCoincidentally his name is German for "pointy nail" so I am not surprised he likes to pop bubbles. /s
- mseepgood 3y agoHis name means "Dirk Müller" in German.
- davidktr 3y agoI understood that reference. To add some content: Dirk Müller is a German doom prophet who some day, eventually, will have predicted it all along.
- DirkMullerTA069 3y ago[flagged]
- go_prodev 3y agoIf his fee is based on profits, he needs to be correct some of the time. The types of events you mentioned aren't all hype and he can't will them into existence, so maybe he's on to something?
- virgildotcodes 3y agoI believe most hedge funds also charge a fee on total assets under management regardless of profitability, so he’d be profiting just by luring in new customers, profits not necessary.
- malikNF 3y agoTo the folk who dismiss this as “just another hedge fund manager who stand to win if everyone fails” Why do you think this event or any other kind of big economic downturn is unlikely to happen?
- karatinversion 3y agoBase rates.
- andrewstuart 3y agoI used to believe it but after 30 years it just sounds boy who cried wolf. Also, inflation kills debt.
- csallen 3y agoI mean you're essentially asking why people think a rare event is rare.
- 1vuio0pswjnm7 3y agoFact or fiction: Someone once told me that the only black swans are found in New Zealand and before people from around the world started travelling there, for the rest of the world, there was no such thing as a black swan. If this is true, then it would seem the term "black swan" has been given a new meaning, namely a "rare" event, as opposed to some thing that people had not yet witnessed. Surely, this is fiction and Taleb is an expert on swans.
- ehnto 3y agoMaybe I am missing the joke, but there are Black Swans outside of NZ.
- anothernewdude 3y agoBlack swans are Australian. New Zealand has blue ducks, but not for long.
- hathchip 3y agoTaleb explains this in his eponymous book.
- regularfry 3y agoAustralia, but yes, this is fact. They weren't known outside Australia before 1697. And you're right about the term: a true "black swan" event is one that is so unpredictable from the prior history that it's just not included in models of the future. It's not just "rare".
- neilwilson 3y ago“Spitznagel believes the rising interest expense on federal government debts will ultimately constrain fiscal spending, slow economic growth” Yet if I give you $100 and you spend it that will create extra transactions and extra tax. Therefore increased interest payments are just the same as mailing a stimulus cheque to those who already have money. More transactions = more growth not less. We can of course change the distribution. Pass legislation requiring base rates to be set to zero permanently. [0] Government debt rates will then automatically fall to Japanese levels. As Japan demonstrates. [0]: https://theconversation.com/interest-rates-the-case-for-cutting-them-permanently-to-zero-209427 https://theconversation.com/interest-rates-the-case-for-cutt...
- surprisetalk 3y agoThank you. I found your article very thought-provoking. > Suppose I own a forest that regenerates at 2% per year and is worth £1 million in timber overall. I could log the forest sustainably, cutting down trees only in line with the speed of regeneration, which would earn me £20,000 a year. > But with interest rates at 5.25%, I would do better to cut down everything, invest my £1 million into bonds, and earn upwards of £52,500 in annual interest (I say upwards because the rate of interest on bonds is usually a little way above the central bank base rate).
- Fredkin 3y agoI found the article very unsettling and seems to be advocating bigger government, financial repression, and authoritarian control of what people spend their money on: "This [CBDCs] could enable central banks to encourage or discourage certain spending in more targeted ways, for example by restricting what can be spent by people in certain areas or income brackets." There's also an argument that higher rates are better for the environment. They are a headwind to rampant consumption. They decrease investment in areas that might not generate a return, focusing resources on existing viable businesses instead of new unproven businesses that are likely to fail (wasted energy). The forest example is very reductive and completely ignores other costs and factors: the expected price of timber and machinery in the future, and the inflation rate in general, the cost of re-planting the forest, wages, the convexity risk of the bonds (if rates appear to be accelerating higher, your bonds will drop in value), the confidence in the government, ... and so on. It also doesn't consider that higher rates curb construction loans, and thus decrease excessive demand for timber, which results in a pile up of timber inventories initially. Businesses then react by doing less logging in future. Zero rates (or more accurately artificially low rates) encourage gambling and waste. If I can get a cheap loan, I can go buy loads of machinery and land and start logging, whereas I wouldn't have bothered if the financing wasn't available. Financial repression in China for instance allows for the cheap financing that builds enormous ghost cities. All that sand-dredging they do emits huge amounts of CO2.
- unnouinceput 3y agoThe original story is here: https://fortune.com/2023/08/05/black-swan-hedge-fund-mark-spitznagel-interview-taleb-credit-bubble/ https://fortune.com/2023/08/05/black-swan-hedge-fund-mark-sp... Yahoo simply took it over. I avoid yahoo like plague.
- j16sdiz 3y agoYahoo paid for them, not "simply took it over"
- __Joker 3y agoEconmics noob here. Leaving aside the Ad Hominem that Spitznagel is hedge fund manager who might benefit from the said event. I can only gather two main points in the argument. 1. Level of debt is at unprecedented levels ( private, public, global) 2. Kind of follows from 1, Government(FED) has very high annual debt servicing. How we go from 1&2 to popping the credit bubble ?
- janejeon 3y agoRight, I'm wondering that as well, because one could argue that 1 & 2 is a necessary condition but not an automatic trigger. Something needs to actually cause the crash, and it's not always obvious that just because there is a bubble, there will be a trigger, hence the saying: "Markets can stay irrational longer than you can stay solvent."
- bradleyjg 3y agoThe real issue is the potential for positive feedback cycles. E.g. The government spends more money on the latest bipartisan bread and circuses bill, treasury rates increase as buyers demand more to hold ever increasing amounts of debt, private interest rates follow treasury rates up, some private borrowers are unable to service their debts at the higher rates and declare bankruptcy, private sector interest rates increase as perceived default risk goes up some private borrowers are unable to service their debts at the higher rates and declare bankruptcy, private sector interest rates increase as perceived default risk goes up Etc. The last time this looked like it was going to happen the Fed stepped in and bought “fallen angel” private sector bonds. This was an extraordinary intervention. They’ll probably try again next time it starts to happen. But they may just be building up a bigger crisis. Since the start of the “extraordinary measures” era in the early oughts they’ve never had to worry about inflation as a countervailing consideration. Now they do.
- datavirtue 3y agoThey don't HAVE to worry about it.
- nprateem 3y ago
- MrYellowP 3y ago[flagged]
- ant6n 3y agoYou don’t talk about the content, or the person of the article talking about the content. Instead you talk about the the people here commenting on the person in the article commenting on the comment. That’s more removed.
- MrYellowP 3y agoThe guy who points out that something's off is the bad guy. Right. Thanks for confirming me in regards to my thoughts about the people commenting. You're not even thinking this through. These people have been exposed to so much doom-saying, they've lost their ability to actually see it coming despite evidence being right out there. If pointing that out makes me the "bad guy", then I rather be the "bad guy" who loses useless internet points, than being the guy on your end of the equation, because how it's going to end for all the ignorant morons in here is rather predictable: Badly. That being said ... I'll dismiss myself from this pool of ignorance. Enjoy what's coming for you. Here's my "I told you so!" in advance. Soon enough you'll choke on it.
- ReptileMan 3y agoWhat is his track record so far with being right?
- belter 3y agoThings you need to look at: "...After the March payday, its flagship Black Swan fund has produced a mean annual return on invested capital of 76%* since the firm was created in 2008. It’s a good result, but if you were going to make the same calculation as of Dec. 31 2019, the long-term compounded return would only be marginally better than that of the S&P 500 over the same time period..." - https://www.forbes.com/sites/antoinegara/2020/04/13/how-a-goat-farmer-built-a-doomsday-machine-that-just-booked-a-4144-return/ https://www.forbes.com/sites/antoinegara/2020/04/13/how-a-go... Also the way they report performance is singularly unique: "Why One Firm's 3,612% Return Is Drawing the Ire of Hedge Funds" - https://www.bnnbloomberg.ca/why-one-firm-s-3-612-return-is-drawing-the-ire-of-hedge-funds-1.1903852 https://www.bnnbloomberg.ca/why-one-firm-s-3-612-return-is-d... The only question you need to ask Universa Investments is: "Did you create other hedge fund portfolios...That could possibly have similar returns out of your expertise...BUT...did not? And did you win down those after a few months or 1-2 years, before reporting on the performance of the surviving one?" The trick above, is directly from "Fooled by Randomness" by Taleb, who is listed as “distinguished scientific adviser” by the fund.
- JPLeRouzic 3y ago> "And did you win down those after a few months or 1-2 years, before reporting on the performance of the surviving one?" My employer (one of the bigger French corporations) from 2005 to 2010 released each year their financial reports showing a 5% revenue gain over the previous year, which was a good performance at the time. Then a few months later, they revised their turnover and reduced it by 5%. Apparently it was legal, and anyway no one ever commented. When the next CEO arrived, the turnover in 2011 was reduced by 10% without explanation and again no one commented!
- slushh 3y agoIt's only a bubble if there is no value to back it up. Is the housing market going to crash or are consumers going to be unemployed to the point that they cannot pay back the household dept? Otherwise, I like to believe that rising dept ratios only reflect that the people who know how to invest profitably are not the people who currently have money. With AI at the horizon, is a value of 2 high for the Buffet indicator? If only big companies have the resources to train NN, who but those traded companies is going to capture the entire GDP?
- speeder 3y agoA lot of people are criticizing the article without reading it, so some points of the article in short term: 1. Yes, Mark is a hedge fund manager. 2. Yes, his fund is specialized in profiting from crashes. 3. But his advice is actually sound and not an ad for his fund. 3a. He said the excessive debt will make government expenses with the debt itself become too high eventually, forcing the government to stop spending and causing recession. 3b. He said that although his fund does profit from crashes, it is something hard to do consistently and expensive, retail investors should just try to profit. 3c. He said Warren Buffet advice that is good, for example buy a cheap index, and then invest more into the index whenever there is a crash, but never let your money on hand get low enough so you would be forced to sell during the crash. 4. The article was written because the author asked Mark for advice about what to do to prepare for a eventual future crash. Mark was chosen because his specialty in profiting from crashes. 5. The headline while true might mislead people, yes Mark said the bubble is set to pop, he didn't said it will pop soon, in fact he said it will pop "Eventually" and he has no idea when it will pop. And this is why he thinks copying his strategy is useless unless if you are retail investor.
- mdekkers 3y agoThank you for the great summary
- em500 3y ago> 5. The headline while true might mislead people, yes Mark said the bubble is set to pop, he didn't said it will pop soon, in fact he said it will pop "Eventually" and he has no idea when it will pop. And this is why he thinks copying his strategy is useless unless if you are retail investor. Professional prognosticators know that for predictions about future events, you should either be specific about the event but vague about the timing, or the other way around. That way you'll often be right and be hailed as a prophet. If you predict something specific to happen at a specific time, you'll usually be wrong and look like a fool.
- oezi 3y agoThe question is if it is true that retail investors can't guard against stockmarket downturns or if that is the point of the article to make them believe this because the hedge strategies wouldn't work without enough sheep.