“How Old Is This Thread?”
This was originally started by @coachV in March of ’22:
When that thread veered down the climate change rabbit-hole, I started this thread in June '22 to return to the investment theme, esp. China:
“Impending Doom”
I’m fully invested right now but decades of investing experience tell me risks were & are high. I graduated from UH in ’77, studied Wall Street since the early 80s, and worked as an investment professional from ’87 to ’19. I’ve seen shite blow up over & over & over. I suspect some of the others in this thread also have decades of investing experience that tempers their perspectives, too.
Take Enron — I remember CEO Jeff Skilling coming to our offices in the fall of ’01 and confidently telling us to keep holding shares. A Value Line report on Enron written in September ’01 stated: “These neutrally ranked (Enron) shares have above-average appreciation potential.” Then on December 2nd, 2001, Enron filed Ch. 11. Shareholder Wipeout! As Enron went down, CNBC setup a large tent in front of Allen Center off Smith St. near Enron’s HQ. I would see CNBC anchors broadcasting from there as I drove home on winter evenings.
After seeing blowup after blowup, I realized they are a part of Wall Street and there will always be more of them. So, I remember these Warren Buffet investing rules — “The first rule of an investment is don’t lose money. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”
Other folks state this idea as: “Rule #1 — Keep your losses small. Rule #2 — Never forget Rule #1.” Example: It takes a 25% return to get back to breakeven from a 20% loss, but it takes a whopping 100% return to breakeven on a 50% loss.
And others state it as: “There are old traders and there are bold traders but there are no old & bold traders.”
“Bad News” & “Broken Clocks”
I agree that recent signals that foretold past recessions have not panned out. E.g., two quarters of negative GDP in ’22 did not lead to a recession.
If I had to guess why these indicators didn’t work, I would say they were overwhelmed by our gargantuan Federal spending — In 2024, the US deficit will be nearly $1.5 Trillion. We are currently adding ~$5.2 Billion of Federal debt per day. Federal debt service is poised to become the largest item in our budget — larger than Defense or Social Security spending.
China is another matter — see Pop Quiz, next.
Pop Quiz
Following a Hong Kong court order for the company’s liquidation, Evergrande bonds are currently trading at a penny on the dollar. https://x.com/FortuneMagazine/status/1755989707140329662
What rate of return will get the bondholders back to breakeven from their 99% loss? Answer at bottom.
my Tips
Back in June ’22 the economy was slowing and the stock market was down. Folks asked about 401K investing. Here was my reply:
Bonus Question Answer: Return to breakeven requires a 9900% return