The Big Short – No One Really Knows What Is Going On

Photo courtesy of Mr KC Kan, on a mission in Nepal. 


This post was published first in and reproduced with permission.


I watched The Big Short for the first time on Netflix last week, eager to get away from the Post Traumatic Stress Disorder (PTSD) feeling with more than a fair share of friends complaining of their brush with the same feeling recently, for misery loves company that is, ironically, shunned by us, the shell-shocked.

The PTSD of the Trump election win, the feeling of utter alienation, watching the incredible unfold in bonds, stocks, commodities and currencies, led by an unfathomable and, possibly, unsubstantiated logic and rationale which kills the mind and heart to watch.

And the good news is ….. No One Really Knows What Is Going On.


The experts do not know what is happening, really.

From the Wall Street Journal…. Baffled by Trump, Analysts Tell Investors to Bet on Motorcycles and Pizza.

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Because construction workers spend on motorcycles ! The Presidential campaign had diners stay home which led to increased pizza deliveries ! And border patrols will need more night-vision goggles ! And Americans may run out of guacamole if a trade war with Mexico starts.

That is logic for you !

US stock markets at record highs when the biggest casualty and risk to the market is TRADE WAR ?


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How could I have been so wrong  ? The USD dollar has flown against since 4 November when I wrote that I will not be big fan of the USD going forward.


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With the exception of Palladium, the Bitcoin and a sprinkling of African currencies, nothing has stood in the USD’s way since the elections, driving the DXY Index to a 14 year high and the ADXY to lows not seen since 2009.

The market is essentially calling bluff on the naysayers now just like they did with Brexit which has not delivered the death blow to the UK economy …… yet ? Perhaps.

The market is expecting that Trump will pave the way for 2.3 trillion USD worth of offshore profits to go home and rebuild the roads, rails, airports and “the wall” that will lead the US to prosperity once again. And the migrants will flee and the nation heals and there will be a happy ending for all Americans.

It sounds like a fairytale because the main assumption behind this stress-induced  fantasy is that all things remains status quo which has not taken into account what has happened in the past fortnight – the USD, bond yields and sky-high valuations for stocks.

This does not also take into account the social tensions aspect that is flaring up in the US as hate crimes reportedly soared and migrants fear for their safety and Turks are warned by their government to leave the US out of their holiday plans.

Maybe it is time for a sanity check ?

If we want to compare Trump to Reagan, we know that Ronald Reagan negotiated the Plaza Accord, to devalue the USD against the other majors in 1985 in an effort to boost exports. There will be no such luck today because we now know that the Plaza Accord is to blame for Japan’s lost decade and her current predicament.

If the USD strength continues on its current trajectory, it would diminish the prospects of “bringing those manufacturing jobs home” by Presidential decree.

And think of what Apple’s profits will look like with the strong dollar ? And just about any company that does business outside the US ?

Mortgages are reeling from the election shock as interest rates continue to rise , paving the way for another sub-prime like blow out as banks struggle to keep consumer loan growth by “pitching riskier loans that come with adjustable interest rates or allow borrowers to pull more equity out of their homes.”

Yet we know that “rising rates make houses less affordable, and that could lead to slowing sales, price growth and mortgage activity. Some analysts are now projecting home values will decline by the end of next year in many U.S. housing markets.”

But the optimist would have it that Trump will jolt a growth in wages to counter that, hopefully and only very hopefully, because there is a lot to do for the lacklustre economy besides that infrastructure spending spree and the trade war to bring jobs home.

The WSJ published a bleak economic report of the economy Trump will inherit.

  • 25 years of modest expansion which is longer than the average economic cycle.
  • Smallest average annual change in GDP.
  • Business spending that has plateaued since 2014.
  • Trade exports hit a record high level in 3Q16 (which would only suggest a downtrend in the works with Trump trade war)
  • Tapering monthly payroll changes.
  • Average earnings growing at their highest since the crisis.
  • Highest youth unemployment ever with the labour force participation rate still near its all time lows.

A sanity check is well warranted indeed, if you ask me, if you are thinking and if you are still suffering from PTSD and taking each day as it comes till the US presidential inauguration in January and the months of political wrangling to come, I still see little reason to favour the USD in the medium term, receiving a confidence boost from watching The Big Short.

Maybe I do not not know what is going on now BUT sometime folks are going to snap out of it and like Ray Dalio, the owner of the largest hedge fund in the world, Bridgewater, says, “The Question Will Be When Will This Move Short Circuit Itself ?”

Yes. Americans will soon be able to smoke weed wherever they want and have hazy dreams of happy times under Donald Trump which will give us plenty of time to put some money into Gold against the USD to target 1400, after watching The Big Short.

Big Short Quotes :

“No one can see a bubble. That’s what makes it a bubble.”

“I have a feeling, in a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people.”

“Truth is like poetry. And most people f*cking hate poetry.”

“This business kills the part of life that is essential, the part that has nothing to do with business.”