SIC 2019: Day 4 Recap

Mark Yusko

Mark Yusko at SIC 2019

The fourth day of SIC 2019 featured a rapid fire presentation from Mark Yusko, who is bullish bitcoin, bullish commodities, bullish emerging markets, and bearish US equities. Bill White presented his concerns about the next crisis and the ability of central banks to manage it. Carmen Reinhart believes there will be a slowdown but not a recession through the end of the year. Howard Marks explained his strategy of using probabilities and odds to create better risk/reward in his portfolio.

I’ve seen Mark Yusko present half a dozen times now. I appreciate Yusko’s willingness to take strong contrarian positions publicly, and sometimes being publicly wrong. In my view, the process is more important than the outcome, because we all know that if you get the asymmetry correct and capture the long tail, you can be wrong half the time (or more) and still win handily in the long run. Studying his process is the benefit of his presentations, even if one’s conclusions are different. I also like that he interweaves technical analysis within the framework of his global macro theses.

My key takeaway from the 4-day event was the consensus view – held by all – to be long bonds of various duration and in various jurisdictions. The conference was predominantly bearish which has been a departure from prior conferences.

Mark Yusko


  • Debt, demographics, and deflation will combine to give us a global recession in the next year. Bonds will out perform stocks in the next year.
  • Too many old people.
  • All of the growth in the first quarter was debt.
  • This long economic expansion was because of debt. Worst economic growth in the history of the United States.
  • Global money supply is shrinking – it is collapsing. 
  • Global liquidity collapsed to pre-crisis levels.
  • Europe turning Japanese. Euro bonds have negative yield. Downward race to the bottom.
  • When we get to a recession, it’s going to be a doozy. It will be the worst we’ve had since 1930s.
  • Money supply in China is falling, not rising
  • We are clearly in a bear market in the US. By the end of year, we will be down double digits.
  • Equities wildly overvalued.
  • We need a 50% drop just to get back to fair value. 1 out of 3 companies in the Russell don’t make money. P/E ratio of the Russell is 90 when you count companies losing money.
  • SPX returns over next decade likely very poor.
  • We have never been this levered into overvalued assets, not even in 2000.
  • Last year cash beat 90% of assets. Cash is king.
  • Volatility is going to explode.
  • Without FANGMAN (FANG + Microsoft, Nvidia) stocks, market is down.
  • Value is dead. Only time value was this unloved was 2000.
  • If you buy on the new moon, and sell on the full moon, returns would be 400% higher than justing buying equities outright. (W.D. Gann cycle theory.)
  • Bear market started Sept 21st last year.
  • Dollar is the most overcrowded trade in the world. The dollar peaks when the Fed starts raising rates. It’s about to roll over.
  • Elliott Wave long term trend says dollar is going down.
  • Oil range will be $40-$60. We think oil will be on the lower end of that range.
  • Interest rates in US and Europe going lower. We are like the Japanese.
  • European stocks are the cheapest they have ever been. They must hold 200 DMA for this thesis to play out.
  • EM consistently outgrowing rest of world because of the middle class. Huge opportunity. Better growth and lower prices. You should be 50% EM and 10% US for the next 10-20 years.
  • CAPE says return for next 10 years will be high.
  • I like Keto for the body and carbs for the portfolio. CARBS – China, Argentina, Russia, Brazil, and South Korea.
  • China going from a manufacturing economy to a consumer.
  • You should have huge overweight to Chinese tech companies.
  • Commodities are cheap. Own rocks, sell paper.
  • Bitcoin’s back. Tell a friend. Bull market back.

Bill White


Flawed Policies Prior to Financial Crisis

  • Failure to recognize positive supply shocks.
  • Asymmetric Monetary Policies, cycle after cycle
  • Asymmetric fiscal policies, cycle after cycle. (Easing not following up by adequate tightening).
  • Inadequate structural reforms.
  • Excessive deregulation of the financial system.

Flawed Policies After Financial Crisis

  • Initial global response to crisis appropriate
  • Subsequently far too much reliance on monetary policy
  • Has been unexpectedly ineffective
  • Allowing dangerous side effects to build up over a decade
  • Rising debt ratios are critical but also other imbalances.

A further stage in the crisis seems inevitable

  • Side effects will trigger or amplify downturn
  • Problems anywhere are problems everywhere
  • The financial system remains vulnerable
  • Debt/deflation threatens

We are ill prepared to respond

  • Crisis management tools increasingly limited
  • Crisis resolution tools are inadequate
  • Policymakers should focus on crisis resolution, but . . .
  • Potentially a worse outlook than in 2008?

Instead they will likely double down

  • No paradigm shift to date
  • Natural unwillingness to admit past mistakes
  • “Something must be done” and this is something
  • But likely more reliance on fiscal policy stimulus
  • The lure of Modern Monetary theory.

Leading to a less unhappy outcome

  • Fiscal and monetary stimulus support aggregate demand
  • Modest inflation replace deflation
  • Credible medium term fiscal targets help keep sovereign rates low
  • So to do instruments of financial repression
  • Orderly debt restructuring and recap supports new credit
  • Tech advances support non-inflationary growth

A more unhappy outcome

  • Any or all of the above fail to materialize
  • Growing gov debt  increasingly financed by central banks
  • Fears of much higher inflation take hold
  • Currency flight is typical
  • USD and Yen have different sources of support
  • Politics and geopolitics: the worst is yet to come?

Carmen Reinhart


  • Slowdown but not recession in the balance of the year.
  • Earnings and market are in for headwinds.
  • Is the Fed going to come to the rescue? My view is the Fed is going to stay put; unchanged policy, even though market is pricing in 25 bp rate cut.
  • EM has to be brought into the picture. EMs are 60% of global GDP.
  • Compared to post-WWII, private leverage is extremely high.
  • Average decline in interest rates during recessions is 600 bps. We don’t have that ammunition. Recessions may be more protracted as a result.
  • Global trade growth now in negative territory.
  • Nominal RoR, let alone real RoR, has been a big driver into riskier assets.
  • Exceptionally high liquidity, low-rate environment has fueled a risk taking appetite that parallels the MBS crisis. Difference is only scale.
  • Quality of debt has deteriorated.
  • EM debt offers high returns over and above the risk free rate.
  • Rise of China as an official global creditor a big concern. Unstable.

Howard Marks


  • I’m not an economist. I’m very proud of that.
  • We have the lowest rates ever seen and declining rates over the last 30 years have been the great tailwind for every activity.
  • I like leveraged loans because there’s no interest rate risk, and I like being at the top of the capital structure.
  • Reduce your money under management.
  • Howard Marks’ New Book: https://amzn.to/2W8FgeD
  • Q. Is it different this time? A. Well, sometimes it is different. . . I think its important to recognize that sometimes the world does change.
  • When you are at extremes, the logic is compelling and the probabilities are favorable. Get the odds on your side.
  • Investment performance is like a lottery . . . there’s no sure thing. There’s a bowl full of tickets of all future outcomes. Nobody should think there’s only one ticket in the bowl.
  • An exceptional investor is someone who has an above average awareness of the tickets in the bowl.
  • Improbable things happen all the time. We have to allow for that.
  • The greater the probabilities in our favor, the more exposure. We reduce exposure the more uncertain.
  • Analytically, at the extremes it is clear what to do. The enemy of the analytical approach is emotion.
  • You have to look at the world probabilistically.
  • I’m afraid to be invested in the market, and I’m afraid not to be invested. Moving forward but with caution. We are mostly fully invested, but more cautious than usual.
  • If you want to be a superior investor, do you dare to be different? Do you dare to be wrong? There’s nothing you can do to be right that doesn’t have some probability of being wrong.
  • One rule as an investor: Invest in things that are unpopular.
  • On Bitcoin, to Mark Yusko: I hate to disagree with you, but I do.
  • Time to have more defense than usual.
  • The thing I puzzle about is that the non-cycle adjusted P/E ratio is not very high. But the probability of high returns is low, and the probability of low returns is high.
About the author

I am the founder of fibonacci.com and an avid trader. I am also the co-founder of Texas Precious Metals, a top US precious metals company. In 2006 I was a contestant on The Apprentice with future president, Donald Trump. I live in Texas with my wife and five children, where I spend my time dodging snakes, changing diapers, and charting.

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