Danielle was a guest with Jim Goddard on Talk Digital Network talking about recent developments in the economy and markets. You can listen to an audio clip of the segment here.
This chart, courtesy of ISABELNET.com, offers some perspective on the unprecedented capital flows that came into the global equity markets in 2021. Freakish.
I have likened truth-telling in finance to being sober in a house of addicts; when noting irrational, destructive behaviours, you are often dismissed as the problem–too dumb, critical or boring to join the party.
Adoring naked emperors is a common theme. Most now know the story of Bernie Madoff’s Ponzi, and yet, compared with many of today’s financial schemes, Madoff was a small-time operator. Many will be filled with regret when participants eventually hit bottom, but any recourse available is much less clear. When taking recommendations from the sell side, the profits are theirs and the losses are all yours.
The Financial Times offers some smelling salts in Why bitcoin is worse than a Madoff-style Ponzi scheme. Here’s a snort:
“…an economic analysis of bitcoin must recognise its uniqueness in the history of manias. As an object of speculation, bitcoin is unprecedented in the degree to which there is no there there. This post-modern mania features big prices for entries on nobody’s spreadsheet. A zero-coupon perpetual has arrived not as a joke but as a trillion-dollar asset. Unlike a Ponzi scheme, bitcoin cannot end in a run. In a crash, the holders of bitcoin will collectively have lost what they have paid the miners for their bitcoin. This sum may be not far from the sum originally invested with Madoff, after accounting for inflation. But bitcoin holders will have no one to pursue to recover this sum: it will simply have gone up in smoke, a social loss. The holders of bitcoin would then only wish it had been a Ponzi scheme.”
My partner Cory Venable’s big picture snapshot of the S&P 500 Index since 1997 (below) highlights the prior cycle peaks in 2000 and 2007 and the breathtaking parabolic move since 2020. Remember that this is one of the most widely tracked stock indices by countless mutual funds and exchange-traded funds and is considered a core holding and relatively ‘conservative’ allocation target for ‘buy and hold’ individual portfolios and pensions alike.
Now understand that the most historically informed base case from presently extreme levels of valuation and price-indiscriminate ownership for the S&P 500 is a 65% decline (highlighted with arrows), followed by many years and possibly decades (as with Japan’s Nikkei when its bubble burst in 1989) waiting to recover the recent peak. Few of the present equity holders will hold on long enough to grow back their losses.
Financial analyst and fund-flow expert Mike Green explains some of the systemic implications for passive allocators and products in the segment below.
Portfolio Manager and financial analyst Mike Green explains The Myth About Passive Investing in this recent discussion with Danielle DiMartino Booth. Here is a direct video link.
