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I only specialize in what I call the really great bubbles if you go back to 1929 to 2000 and to Japan and the housing the housing part of the housing bubble and you ask how did conditions look profit margins looked great the forecast was great there was no chance of a recession a few months ago smart people were saying there was a 20% chance of a recession in three years it is quite amazing and what happens after the bubbles break it's there's always a recession pretty quickly people never get it people never forecast it and along with the recession Comes A Drop in profit margins going into the bubbles breaking profit margins are always at a peak bubbles don't Peak for no reason they Peak because economic conditions are nearly perfect and that includes low inflation and high profit Mar and the first thing to go in the recession of course is the profit Market that is very likely to happen this time we should be a recession mild or severe is the question but we should be in some sort of recession fairly quickly and profit margins from a real peak have a long way that they can Decline and if you want to get into the longer term I think this kind of 2,000 bubble that we have is dangerously likely to Morp into the 1970s where inflation is always a part of the background discussion and where growth rate starts to dwindle away so you have shades of stagflation as we had in the 70s where Commodities are intermittently scarce price Jags here and there as we have seen recently where the whole system is so strung out and so borrowed that it's lost its resilience all you have to do is cost in covid or a war in the Ukraine and you see the problems ricocheting around the system that was not designed to absorb any kind of punch last minute inventory delivery no reserves putting all of your business with one country far away no flexibility no resilience and now we begin to pay the price the beauty about indexing is you never miss an Amazon or an apple and the bad thing about indexing is you never miss having a lot of overpriced stocks into one of the relatively rare bubbles such as we have now so it's kind of good news bad news if you can write out the odd 50% decline totally unnecessary of course some fundamentals 30 years ago the market is mildly hysterical from time to time and it's totally unjustified by the steady stream of dividends and earnings but it happens and if you want to ride those 50% drops you know good luck it works out very well in the long long run but it can take you 20 years to get back in the game if you get caught in 1929 it works out just fine but you don't get your money back until 1955 if you get hammered in 74 you don't get your money back until ' 87 and then when you've gotten it back for a month or two you give it up again and the same in 2000 by 2010 you're still losing money so you have to be willing to ride out and some people feel their lives aren't long enough to take the 10 15 20 year wipe out so for those who feel they're brave enough and willing to try I've always thought that sidest stepping some of the pain might be a good idea I think they're perfectly straightforward they're intellectually easy and psychologically disastrously difficult they're easy because in most cases they're so extreme it's like how do you notice the Himalayas when you're standing in Northern India I mean they come out of the plane and they soar up you can't miss these things 1928 29 was just such a massive rally so the sheer price rise you can't miss secondly just to make it easier the great bubbles have always tended to rise faster and faster towards the end and that's a kind of defining feature also and then thirdly they have all been accompanied by Massive public obvious crazy behavior where the headlines migrate from the financial page to the front page where they migrate to the opening few sentences of the evening news on the radio or the television and they talk about Market New highs and they talk about what the Bitcoins of the era have done I know it's not a stock but it's a speculative instrument and the uh GameStops of the world and back in 2000 most of you will be old enough to remember the pet.com and the utter craziness of that period and the same was true of 1929 the same was true of Japan we had a group from Solomon Brothers a leading American brokerage House of the era who came around in 8889 when Japan was moving to 60 times earnings and explaining that their yields Etc and their interest rates Etc they really should have been selling at 100 times and they were cheap and you should buy them and it didn't startop the Japanese Market breaking the following year it has not recovered the high of 31 years ago yet so U that was pretty painful
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