i do not agree with your assessment that markets are efficient, if markets would be efficient, we would not have big investors like buffett or soros benefiting from mispriced assets: GS during GFC is a great example as they suffered from liquidity and not solvency issues and buffett made a big bet as markets mispriced GS balance sheet and nothing to do with supply/demand, similar investments in early 70/80s in coca cola trading at stupid 5x P/E if that is not inefficiencies I do not what is....certainly not valuations of AI names :-)
My point is that politics changes - and old politics or "free markets" cycles as competition would cause pricing to fluctuate. Now politicians have socialised risk, the risk all lives in government assets - ie bonds.
You say that market are efficient and, at the same time, that they have ignored Google's TPU for ten years and that they are indifferent to the rising yields in Japan. How can you reconcile these statements?
I suspect with the TPU, markets assumed that if Intel could not compete with Nvidia neither could Google - so this was a genuine surprise - and technology does that all the time.
Politics is where real variation comes in. the GFC was built around the political assumption that the Fannie Mae and Freddie Mac was going to be bailed out by the government - which they were, but they needed a crisis first. Same with Eurocrisis - markets got politics wrong, not economics
If you are right that yields are in a secular "bull" market (and I think so), this time around it would be very difficult for governments to arrange a bailout for the sector that will emerge as the epicenter of the next crisis. Equity markets are poised to be surprised...
i do not agree with your assessment that markets are efficient, if markets would be efficient, we would not have big investors like buffett or soros benefiting from mispriced assets: GS during GFC is a great example as they suffered from liquidity and not solvency issues and buffett made a big bet as markets mispriced GS balance sheet and nothing to do with supply/demand, similar investments in early 70/80s in coca cola trading at stupid 5x P/E if that is not inefficiencies I do not what is....certainly not valuations of AI names :-)
My point is that politics changes - and old politics or "free markets" cycles as competition would cause pricing to fluctuate. Now politicians have socialised risk, the risk all lives in government assets - ie bonds.
You say that market are efficient and, at the same time, that they have ignored Google's TPU for ten years and that they are indifferent to the rising yields in Japan. How can you reconcile these statements?
I suspect with the TPU, markets assumed that if Intel could not compete with Nvidia neither could Google - so this was a genuine surprise - and technology does that all the time.
Politics is where real variation comes in. the GFC was built around the political assumption that the Fannie Mae and Freddie Mac was going to be bailed out by the government - which they were, but they needed a crisis first. Same with Eurocrisis - markets got politics wrong, not economics
If you are right that yields are in a secular "bull" market (and I think so), this time around it would be very difficult for governments to arrange a bailout for the sector that will emerge as the epicenter of the next crisis. Equity markets are poised to be surprised...
Yes - at some point the politics will turn against large caps and private equity in my view - especially if they are seen as driving inflation.
You may be writing on this as I type, but the rapid spike in Japan 10 year yields of late seems important, no?
Yes... I think Japanese yields lead and US follows
There is no doubt the world today, and markets especially, do not resemble anything pre-covid, let along pre GFC