An Example of an Industry Analysis; Hedge Fund Quiz

https://youtu.be/gfvAIor53Ig A 22-minute video covering the uranium industry.  An excellent example of how to approach a deeply cyclical resource industry. March Uranium Report The stock catalyst report

https://youtu.be/fw–RzrEWkQ An Industry Panel

Go where they ain’t (but patience is needed in huge dollops):

HEDGE FUND ANALYST QUIZ

Your boss calls you into his office and asks if the Fed should keep raising rates?  Then he asks if the Fed should lower rates?   What do you tell him?   There is ONLY one correct answer.  To KEEP your job you must answer correctly.

Don’t despair, you can view these excellent investing/business videos:https://www.youtube.com/channel/UCVJalJNQWimC2zWrIHR_bSQ

The Minsky Moment

June 19, 2017
Hyman Minsky was an economist who popularised the idea that “stability leads to instability”. According to Minsky and his followers, credit expands rapidly during the good times to the point where a lot of borrowing is being done by financially fragile/vulnerable entities, thus sowing the seeds of a financial crisis. That’s why the start of a financial crisis is now often referred to as a “Minsky moment”. Unfortunately, Minsky’s analysis was far too superficial.

Minsky described a process during which financing becomes increasingly speculative. At the start, most of the debt that is taken on can be serviced and repaid using the cash flows generated by the debt-financed investment. At this stage the economy is robust. However, financial success and rising asset prices prompt both borrowers and lenders to take on greater risk, until eventually the economy reaches the point where the servicing of most new debt depends on further increases in asset prices. At this stage the economy is fragile, because anything that interrupts the upward trend in asset prices will potentially set in motion a large-scale liquidation of investments and an economic bust.

This description of the process is largely correct, but rather than drilling down in an effort to find the underlying causes Minsky takes the route of most Keynesians and assumes that the process occurs naturally. That is, underpinning Minsky’s analysis is the assumption that an irresistible tendency to careen from boom to bust and back again is inherent in the capitalist/market economy.
In the view of the world put forward by Keynesians in general and Minsky in particular, people throughout the economy gradually become increasingly optimistic for no real reason and eventually this increasing optimism causes them to take far too many risks. The proverbial chickens then come home to roost (the “Minsky moment” happens). It never occurs to these economists that while any individual could misread the situation and make an investing error for his own idiosyncratic reasons, the only way that there could be an economy-wide cluster of similar errors at the same time is if the one price that affects all investments is providing a misleading signal. The one price that affects all investments is, of course, the price of credit.

Prior to the advent of central banks the price of credit was routinely distorted by fractional reserve banking, which is not a natural part of a market economy. These days, however, the price of credit is distorted primarily by central banks, and the central bank is most definitely not a natural part of a market economy. Therefore, what is now often called a “Minsky moment” could more aptly be called a “central-bank moment”.

I expect the next “central-bank moment” to arrive within the coming 12 months. I also expect that when it does arrive it will generally be called a “Minsky moment” or some other name that deftly misdirects the finger of blame, and that central banks will generally be seen as part of the solution rather than what they are: the biggest part of the problem.

www.tsi-blog.com

3 responses to “An Example of an Industry Analysis; Hedge Fund Quiz

  1. “Your boss calls you into his office and asks if the Fed should keep raising rates? Then he asks if the Fed should lower rates? What do you tell him?”

    Neither. The Fed should let the market decide interest rates.

  2. BINGO! 100+ A++ As obvious as you or I might think the answer is, there is an entire industry around Fed actions.

    Hayek called setting interest rates or any government interference into markets as the “FATAL CONCEIT.”

  3. Haha. I would answer what my boss wants to hear to keep my job 😛

    Jokes apart, great post John – neat ways to think about commodities.

    Many thanx

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