Thread by @Trinhnomics

Major papers now have op ed praising Ray Dalio for apologizing (but not mention his hubris in late Jan) & how one cannot fault him for vol.

Where are the columns batting for the regular guys whose pensions crushed? Why many major papers are batting for a billionaire hedge fund?

He developed this idea called risk parity (many people say the violence in markets is b/c of the unwinding of such trade). If u know what it is, read this article: ft.com/content/4d5cac…

The whole idea is this: u balance ur risk & then what funds do is leverage to juice return.

So when assets move together (only USD cash was worth anything last week) DOWNWARD, and you have LEVERAGED, then we got a problem.

Now but u say, well, how could we have foreseen this? Maybe we couldn't. But something we should have all seen: the system is too leveraged!!!

So the reason why our financial system is fragile is that we have too much LEVERAGE & fundamentals WEAK & everyone saw that but no one did anything & continued adding more risks + leverage as THEY OPERATE IN A SYSTEM WHERE RISKS HAVE BEEN SYSTEMATICALLY MIS-PRICED. So we're here.

I'd say that central banks did not help, especially the Fed. Ben Bernanke tried w/ tapering in 2013 but markets had a tandrum

Instead of carrying on w/ his mandate, he capitulated. Janet Yellen also did the same. She raised rates like 25bps PER YEAR when growth strong

JPO tried

Jerome Powell raised rates the most & did QT. Market screamed when he raised rates in 2018 (same year as trade-war escalation).

And we got December 2018 where markets revolted. We got President Trump pushing JPO to cut every day on Twitter slamming him hard

JPO caved. Cut rates

And then we got markets after being scared, got more empowered!!! There were a few cheerleaders in markets for the bull market to go on forever despite signs of weakness in Asia.

Did u see my tweets on Asian data? Very bad in 2019. And also elsewhere. Markets rallied & cheered!

And as we ended 2019, the amount of risk appetite got even stronger as data was in double digits decline.

That is even before the 2020 coronavirus disaster hitting China & now the world.

News of the virus started around January & China shutdown in late Jan. We knew it earlier!

Yet,still had cheerleaders saying random stuff like this is just a rounding error & central bank liquidity is all that matters & bull market marches on.

Meanwhile, risks accumulated & leveraged

And even when the WORT THAN EVER CHINA PMIS came out, MARKETS MOVED UP! I kid u not!

It was as if the equity markets could be divorced from earnings & fundamentals forever.

And the only reason people believed that was b/c they believed that central banks have no limits!

Then 1 day, people woke up & dumped risks. And it fell hard b/c of leverage in the system.

Rant ends. Have a great weekend getaway inside your apartment/house.

I now continue reading my FT Weekend paper - House & Home is my fav part to read & also this random gardening column in the back - not sure what dude says but I like gardening :-)

👋🏻

ft.com/content/37f0e8…