2018-09-15: The 10 Year Anniversary of Lehman Brothers declaring bankruptcy

In the grand scheme of things, ten years doesn't seem like a long time. At least when you're no longer a child. This wasn't the first time I had witnessed a major market meltdown. I had the doubly fulfilling childhood of going through junior high and puberty when the Dot-Com Bubble correction of 2000 followed a year and a half later by the September 11th terrorist attacks.

Many prognosticators claimed they've predicted that a major financial crisis was due, though in many cases they were excessively vague, and their commentary was more hindsight than value. Some however, seemed to have genuine insight. Nassim Nicholas Taleb would seem to fall in the latter category.

Taleb doesn't have his detractors though. Quixotic Finance seemed to have a peculiar interest in trying to descredit Taleb. He also seemed to have fallen off from blogging in early 2016. I wonder if Brexit or Trump had anything to do with that? Either way, his Lehman Brothers article focuses on accusing Taleb of hypocrisy: Taleb's prediction for the housing crisis could not, in Taleb's own words, be an accurate prediction. He juxtaposes Taleb's "airplane could hit his office" quote from his book to make this assertion.

Unlike airplanes hitting the World Trade Center, market crashes aren't Black Swan events. They happen often enough that people who are paying attention can reliabily profit from them. When given the tired "But Muh Efficient-Market Hypothesis", I can only respond by saying three quarters of morons in the market would be better off buying an index fund. None of us is as dumb as all of us. The other 25% of us don't need to say "We Told You So..." we'll be too busy enjoying our early retirement. "But that means no-one can consistently beat the market!" It's not important to consistently beat the market. What matters is that when you do beat it, your margin is bigger than the margin when you lose. F-Score, Value based investing are two ways to do this. Funny coincidence that Poker Experts can expect to do better than the average unskilled player three quarters of the time. Investing is a skill based game.

Of course, "Tawk is cheap". I should at the very least provide my own prediction and add some "Skin in the game" 'less I be guilty of being a bullshitter myself. So consider the following:

Investor delinquincy in mortgages increased from 15% to 35% over the course of seven years from 2000 to 2007. Subprime mortgages had also grown from $20 billion to $600 billion over that timespan.

For comparison, the student loan delinquincy rate is currently 11.2% but is projected to hit 40% by 2023 There's also $1.5 trillion ($1500 billion, compare to the earlier $600 billion) of this debt lying around. Note that this delinquincy rate was only 6.7% back in 2008. The fact the media isn't continuously bringing this up, or in fact is telling you to invest in for-profit education stocks (The ones that have the highest default rate!) should alarm you.

One could argue the fact that students loans in the US aren't dischargable in bankruptcy means that any securities that use said debt as an underlying asset shouldn't be as risky as mortgages. Then again, we also don't know what might happen when 10% of the population has their consumption severly restricted through wage garnishment.

Since I don't want assholes claiming they used my blog as investment advice and then trying to sue me when they lose money, I've encoded my prediction via SHA-1: a29d24bb7c870bd71aef903d6e0c4a7d61911cd2. THIS WEB-SITE SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. THIS WEB-SITE MAKES NO GUARANTEE OF MARKET PERFORMANCE. INVESTING IS AN INHERENTLY RISKY ACTIVITY.

2018, Fr8train

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