- Hot money (normally leverage) to find the best yield return;
- currently this is what happen to commodity
- Example, LTCM, highly leverage, predicting the equilibrium (they were the market), when the music stops, they collapse
- recently the housing bubble, since 1930, house prices never goes down
- there is no such thing as free lunch (allocation of scarce resources)
- Forecasting in a business sense, interview the stakeholders (concensus forecast)
- concensus already discounted into the market (does not add value)
- value added must exceed cost (look beyond concensus)
- must be important; good chance of happening (not contrarian but based on track record); find out what is important, likely to happen and not in the concensus
- history will playout (under the similar environment)
- history never repeat but it rhymes.
- early 70s, we are short of everything, inflation is running on double digits (we look at steel industry, massive hoarding, because supply exceed demand tonnage, inventory is not reported) 1921 is similar environment like early 1970s (inventory built up)
- over or under regulations is in the eye of beholders (government alway react during a financial crisis)
- micheal lewis said that financial sector is the parasite of the real economy (financial sector went beyond its role - derivatives)
- excess houses inventory (about 2 million), 1.5 million a year, it takes 5 years to clear the inventories
MyView
He suggested to look beyond the concensus forecast (already discounted). Look for value add.
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