24 Comments

The other question to ponder upon, which Druckenmiller has been on... is the US getting to a point where it can't bailout bankrupt companies/sectors, because there is going to be a hell of an opportunity out there if it is.

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Hi Russell, some thoughts

1) to what extent has the return on short-selling been from "fat tail" (bankruptcy) being realised (ie: Enron, Lehman, Sub-prime) vs ongoing carry?

2) In a pro-labour era, wages will structurally rise. However there's also an aversion to unemployment - so in my view "zombie" companies are increasingly likely (unable to earn their cost of capital, but still listed and functioning). Historically Japan and Korea are full of examples like these. How would short-selling fare in such an environment?

Cheers!

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I look at your charts and think, when will investors stop investing in stocks with low yields in an environment of persistent inflation? Will everything grind sideways for a long time or will there be some sort of inflationary shock?

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Nov 30, 2023·edited Nov 30, 2023

Perhaps I am misunderstanding what the term "bailed in" means, but all depositors of SVB were guaranteed by the FDIC regardless of the $250K cap - and 88% of SVB depositors were over the FDIC cap.

The Fed also created a new facility that enables any bank to turn in a bond and get face value in cash - to greatly reduce the likelihood of a bank-run induced liquidity squeeze like those that took down SVB and FRB.

And lastly, SVB was sold off to First Citizen's via a ~$15B? ($19B was paid by the FDIC to resolve both SVB and Signature) subsidy.

These collective actions hardly seem the same as "letting SVB go".

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There are three way for overvalued assets to return to fair value across time. One the price falls, alternatively value moves up faster than price and the converge in the future, and three the value of the currency falls, in short the value falls relative to what it could buy. Following 2008, the government supported the bank so that value to catch up to price, while hyperinflating the currency. This was not noticed as at the margin an older (boomer) would save as would the banks the marginal dollar so velocity fell but the inflation was still there, so 6 years ago I wrote a series on this using AMZN as an example against BTC - BTC was at 2600 and AMZN at roughly 1000 at the time (pre-20/1 split). The inflationary short finally showed itself when the margin dollar flowed to younger people who wanted goods - now the inflation is everywhere and it is going to get worse looking at CBO projections of 5.5-7.0% for the next decade - that will double the price level before any of the foreign dollar make their way back.

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Hi Russell. Big fan of your work. I was wondering if there was a course or library where you were able to collect all these historic parallels to draw upon.

Help would be appreciated thanks!

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