Ragnarok v Fimbulwinter Markets

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In their  latest episode of the VALUE: After Hours Podcast, Taylor, Hoffstein, and Carlisle discuss Ragnarok v Fimbulwinter Markets. Here’s an excerpt from the episode:

Corey: Yeah. I feel I’m about to pull a Jake Taylor drop some knowledge, maybe. I don’t have anything [crosstalk]. But the letter I wrote was this idea of “Titan Norse mythology of Ragnarok” versus Fimbulwinter. I think probably people have heard of Ragnarok. It’s the big end of the world. The Gods versus I think it’s the giants that they fight. Anyway, the whole world ends up blowing up in Ragnarok and starting anew. People tend to be less aware though of this thing called Fimbulwinter, which is this never-ending winter that takes place before Ragnarok. It goes on for three seasons, they’re long, horribly cold years, they’re longer than normal, there’s no summer reprieve, it’s no end in sight, sunless days, bitterly cold.

I was saying the last couple of years, we’ve been really accustomed to Ragnarok-type sell offs. Very violent, very quick, and it rips the Band-Aid off, and I’m getting the sense that everyone just wants that to happen right now. They just want it to be over with. The path of pain is the Fimbulwinter, which is it’s 2000 to 2003 of just have to deal with a bouncy, downward-drifting markets.

Tobias: Even 2007 to 2009 was like that. It started in June, but by June 2008 nothing had happened, it was just flat.

Jake: Yeah, sideways.

Tobias: The real action was Q4-2008, Q1-2009. That was when you got the big waterfall sell offs.

Corey: I think the big difference for me, the way I’m looking at it is, a lot of the stuff over the last 15 years after 2008 to me was very technically driven. You look at each of the individual market sell offs and yeah, maybe there was a fundamental or economic catalysts, macroeconomic catalyst, narrative at least. But it seemed to me, you look at March 2020, a lot of that was endogenous market risk. We had vol sellers blowing up, you had all market dislocations, you had some vol issues in December 2018.

Today, when I look at market positioning, everyone’s already de-grossed. Everyone’s bought their put protection. There’s going to be some commodity people that blow up with these commodity moves. I don’t know whether that will have the spillover effects into the equity markets that ultimately take us down, but economic based sell offs almost by definition have to take longer, because you have to wait for the economic risks to play out. Unless Russia just decides to end the war, you have to wait for this thing to play out. You have to wait to see how long these sanctions are in place. How long those sanctions are in place, we are going to have impacts on commodity prices. You can’t rush that.

Jake: Yeah.

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