Discussion about this post

User's avatar
Ed Kammeyer's avatar

In 1999 there were hardly any retail investors with margin accounts capable of participating in the options market, and even fewer that had accounts at the CBOE or CME for trading futures and other derivatives. The only ones that could take down large lots of options contracts were the long/short hedge funds and other large speculative companies involved in the Equities markets. Even institutional investors like insurance companies were hesitant to use derivatives at the time due to the lack of liquidity they would experience. A retail investor with a margin account was a rare observation in 1999, and the 2000 bubble pop delivered us something we have today that we didn't have then: The Pattern Day Trader rule and it's pre-requisite $25k account balance. Fast forward to now, this is a dramatically different environment.

We also, did not have a Federal Reserve that would even contemplate rescuing a bank or financial institution that bit off too much risk. That's why they're the FED and the banks were their customers. Add a few more financial crisis' to the mix after LTCM in 1998 and abracadabra: A Nonstop Two Decade Long and counting Keynesian Orgy commences. Monetary policy tools and the views of those managing it - are very different. In the Late 90's Japan's struggles were underway, but not nearly where they would wind up now, and nobody thought Japan was taking a prudent path forward. Most of us with brains still don't, but now we are not just sleeping in the same bed, we vertically integrated that bed and it's living in the Federal Reserve's board room.

Are we too distracted? Well, most of the money sitting in retirement accounts with BlackRock, StateStreet and Vanguard is 100% distracted unless they're about to retire... then they're terrified they don't have any easy way to reinvest those portfolios for producing income because we still don't have any meaningful or reliable yield in the fixed income markets. Never mind the fact that the lack of sound monetary theory will move the dollar to the basement and send government debt into the main septic line with it. That's just ONE distraction. Want a few more distractions? OK, you asked for it: Pandemic that comes seemingly out of nowhere, All world Governments reacting by following China's ideal approach to pandemic response. Once they found compliance amongst terrified populations, they doubled down and decided to take us to pound town with their new dreams of an authoritarian wet dream, and boy have they managed to do that. Some people are standing up, but the spread of government power centralizing globally has leaked its tentacles into every protected civil liberty we still have, and this obviously is a distraction as it starts to impact our children and every day to day life out there.

The potential catalysts are too numerous to list but a few I was able to think of:

a) China v Taiwan - if this happens, I don't think it would take much else to kick the ball down the mountain.

b) Russia cuts supply of energy to Europe as a show of political power.

c) Biden dies while in office, leaving our woefully inadequate VP to take the helm as our new fearless leader.

d) Off balance sheet credit risk - Bill Hwang 2.0 - Off B/S credit risk has popped many market bubbles so far in history that we can't bet against a tried and true winner like these guys. What dumbass bank has leant money to an irresponsible person who then dumps the loan into a speculative market hoping to become the next George Soros? We don't know, but we do know that no amount of regulation and government oversight has kept this from happening, and in fact might have caused encouragement in the past.

These are simple thoughts I am glad I have an outlet to share, because they keep me up at night for realz.

Expand full comment
Chris M's avatar

It's impossible to know what exactly is going to pop our bubble economy; but your point that we are "weaponizing" financial instruments like call options is great. I'm fifty years old and I lived through the Dot Com bubble and I don't remember call buying being a thing like it is today, at all. But, when you think about it, our entire economy has been "financialized" and CENTRALIZED to such a degree that it's become even more fragile than it was back then. I remember the "Maestro," Alan Greenspan, talking about irrational exuberance, etc., but I don't remember hearing from the Treasury Secretary ever other day; not to mention other Fed presidents. These central planners are the creators and also the cheerleaders of this financial edifice. My problem with all this is that central planning always seems to end badly. The Maestro didn't look so smart after the Dot Com bubble, did he?

Chris Meola

Expand full comment
32 more comments...

No posts