08/15/2022
Recently I had the pleasure of speaking with Jón Daníelsson, who researches systemic risk at the London School of Economics. The topic: why financial crises happen, which is the subject of his latest book.
Similar finance/economics books written by academics tend to be dense and highly technical, but Daníelsson makes it easy to understand for the non-experts. It’s a relatively short, easy read (I finished it at the beach). It even includes some original cartoons! I recommend it to anyone who wants to learn more about the inner workings of fínánce.
And while we’re at it, how about this new bull market in the NASDAQ? Meme stonks have apparently returned, and famed investor/overall grouch Michael Burry is doubling down on his bearish call.
Welcome back to the craziness, my friends. You never left.
Mike
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The Truth About Financial Crisis
Investing
If it wasn’t for high fínánce, most of our modern world wouldn’t exist. But if the global financial system is so wonderful, why does it always seem to lurch from one crisis to the next?
In The Illusion of Control, Dr. Jón Daníelsson dives into the origin of systemic risk and why financial crises happen…and also destroys conventional thinking.
Financial Crisis is Inevitable: Regulators try to address problems as they arise, but that only causes an issue to pop up somewhere else where you aren’t paying attention. Creative people will always find a way to eff things up.
Systemic Risk: New practices and uniform regulations put in place after the previous crisis cause institutions and investors to approach risk in the same way, paradoxically worsening the next crisis when the herd stampedes in the same direction.
Instead of unintentionally creating a shock-amplifying system, as regulators tend to do, Daníelsson recommends shock-absorption techniques such as diversifying the types of institutions that make up the financial system. Diversity (in terms of thinking about risk) acts as a stabilizing force during a crisis.
"The Illusion of Control" is available now on Amazon. Support this publication by ordering through the Tycoonist Amazon storefront
Burry the Bear
Stocks
Even though the NASDAQ is up over 20% from the recent low, Dr. Michael Burry, maybe the most unfun investor in the world, wants you to know that your notions of LFGGG!!! 🚀🚀are premature.
Burry, made famous by The Big Short, doubled down on his prediction that will stocks will go lower. In a tweet posted last week, Burry noted that the NASDAQ staged several 40%+ rallies before the ultimate bottom (the tweet was promptly deleted, per Burry’s custom).
Previously: In June, Burry asserted that an earnings decline would fuel the next leg down for the market, although earnings have since come in stronger than expected…for now, at least.
Wherever stock prices end up going, several market indicators suggest that many valuations aren’t historically low.
Mogul Moves
Tracking Big Investors and Business Leaders
Warren Buffett just keeps on buying Occidental Petroleum OXY 0.00%↑ . After plowing in another $1.5B last week, Berkshire Hathaway now owns over 20% of the oil company. If Buff Daddy exercises his warrants, he could end up controlling one-third of the shares.
Billionaires including Tito’s Handmade Vodka founder Tito Beveridge and Bill Gates are buying up thousands of acres of land around Phoenix, Austin, and Miami, as reported in the WSJ. Land.com recently reported record transaction figures for Sunbelt growth cities.
Barry Diller-controlled IAC 0.00%↑ revealed that it bought back its own stock for the first time since 2018; CEO Joey Levin also told Barron's that he believes stock market valuations could become more attractive from here.
Memes and Sarcasm
I’d like to report a murder
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