But also, a performance fee is kind of like an option in that it has an asymmetrical payoff - if you make 100 in profit, you get 20, but if you lose 100, you don't have to pay 20. All other things being equal, the expected value of a performance fee will increase with portfolio size as long as there is a chance you are right (and there is always a chance you are right).
Yes, the predicted events will have to come to pass eventually to collect on the performance fee. Nobody (not even this guy) knows when that will happen, but everyone knows that it will happen eventually, and in the meantime, you can position yourself so as to maximise the payoff when they do.
So all he's doing is timing the market. That's it. And here's the thing: it's impossible. Statistically, he and everyone else are on average bad at it. For example, over the past year he and many folk have predicted recessions, depression, stagflation and even collapse. And here in the US they've been entirely wrong. And if you invested according to them then you lost a lot of money.
The reason why this is a bad investment is because the opportunity cost of what you could be doing with your money during all the time that he's wrong up until he's right. And then you have to hope that when he's right, it makes up for all the time he was wrong. Statistically, it's unlikely.
Your best bet is to make the best investment you can that pays today, not a bet on a payday that could happen tomorrow... Time in the market beats timing the market.
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.
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.
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-cutt...
"...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-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-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.
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!
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".
https://fortune.com/2023/08/05/black-swan-hedge-fund-mark-sp...
Yahoo simply took it over. I avoid yahoo like plague.
Chart for reference - always good to keep in mind the big picture: https://www.macrotrends.net/2016/10-year-treasury-bond-rate-...
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?
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.
It’s never a surprise to hear bad news from people who make money from bad news.
Well yes, it's in the actual title of the article.
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 ?
Why do you think this event or any other kind of big economic downturn is unlikely to happen?
Also, inflation kills debt.
> 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).
"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.
As for Japan, I find their name pops up oddly frequently in economic discussions. I suspect many of us still have an image of them from a time when we were growing up and their economy was booming - predicted by some to imminently surpass even the US. Here [1] is a graph of its GDP including and since then. They been in a state somewhere between decay and stagnation for nearly 3 decades now.
[1] - https://www.statista.com/statistics/263578/gross-domestic-pr...
Lots of people want that. Particularly those with tax bills to pay in dollars.
Why repeat the myth?
So far people are eating into savings or getting pay rises, but as businesses are in the same boat they can't keep paying staff more and raising prices forever.
So at some point the wheels fall off as people and companies need to repay their once cheap debts, or else are just left with very little disposable income/capital with which to operate, reducing spending. This causes a recession.
The government being in the same boat reduces the money available for government spending too.
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.
People used to think, that a dramatic crash could only occur on condition of an extraordinary event. Think of country X loosing a major war + inability to pay the accrued bills.
Well, then came the subprime mortgage crisis, so now we know that we really don't know. Mr. Spitznagel is either a crackpot (most likely scenario) or he is in the know.
To add some content: Dirk Müller is a German doom prophet who some day, eventually, will have predicted it all along.
yes, and it shows. This is an example of why it's generally a bad idea.
I saw the super doom and gloom headline and thought “hedge funds trying to engineer a crash”.
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 ..."
Rates above zero at base are artificial. They should be determined in the market for money via competition - not by wonks in ivory towers
This idea that rich people need to be given free money from government has no justification. There isn’t a fixed amount of money. Nobody is fighting for it.
You can only get a cheap loan if you have collateral for it. Therefore you are doing nothing more than spending your existing assets via a liquidity loan. That’s how an economy rapidly develops and why ours are better off than those where interest and lending is frowned upon
If money is immediately costless to produce for the entity producing it, there is still a cost and it's born by everyone else. It must be accompanied by an increase in desired goods and services to retain value. If the entity that creates the money uses it to create more value than the inflation it causes then this is a good outcome. Otherwise if the money is created to pay for unproductive behaviour like funding big wasteful armies or propping up asset bubbles, then money will ultimately become worthless and society loses, especially if the originator(s) of new money or derived credit get bailed-out, socializing the losses.
Giving money/credit creation some friction should help prevent asset bubbles: Feedback loops that get going when new money bids up collateral, which is borrowed against to create loans to bid up collateral further etc. But there are many ways to do this, and I agree that subsidizing rich people with a 'risk-free' rate of return on government bonds is not very fair or effective.