300th Anniversary of the South Sea Bubble! Is It Happening Again? - a podcast by McAlvany ICA

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The McAlvany Weekly Commentary

with David McAlvany and Kevin Orrick



300th Anniversary of the South Sea Bubble! Is It Happening Again?

January 15, 2020



"This year we celebrate the 300-year anniversary of the South Sea bubble, which, again, in retrospect, with 20/20 hindsight, I think we’re going to diagnose and critique as crazy behavior. But in the moment, our own version of the bubble, whether it’s Tesla or government bonds, all of this seems very rational, right? So if you’re looking for indications of concern – hey, here we are. There are none. All must be well."



David McAlvany



Kevin: David, I was thinking about this. I’m going to take you back to 1912. Let’s just think this through. What if you were getting on the Titanic and you had heard that it is the greatest unsinkable ship, the largest – all the stuff about the Titanic? What if you didn’t know that the plan was to go on a more northern route and at a speed much higher than normal? And that if we did encounter icebergs we probably wouldn’t be able to turn out of the way quick enough.



Now, you’re still taking a chance, and it’s 1912, it’s the greatest ride ever. Would you get on that ship if you would know those additional facts, if you would have known that it’s a northern route, there are icebergs in the water, and there is a high chance that you could encounter one and not be able to actually maneuver around it?



David: Kevin, it’s very difficult to separate yourself out from sort of the spirit of the age. So this unstoppable march of progress, if that is a part of the meme of that day, then how do you step outside of that? This is the greatest engineering feat of all time. It’s the biggest boat with the largest number of amenities, so arguably things are different, because you’re working with a different kind of machine. And therefore you should have a different trajectory and kind of imagination of the environment that you may be encountering.



Kevin: Well, and I look at current conditions, talking to clients and just listening to what people are saying. The China deal seems like that is foremost on their mind. I asked a client yesterday, “What do you think about the stock market coming up over the next year or two?” He said, “Well, I guess it all depends on China.” And I just paused. And I thought, “Oh my gosh. He doesn’t hear anything about the icebergs, he doesn’t understand about the northern route. He doesn’t understand that there is no way to maneuver if he is wrong and if China is really not the big issue.” And it just gripped me because I realized he has bought in to the narrative of the age.



David: It’s one of many issues. You look at the Taiwan election here recently, a landslide victory which points toward greater conflict with the mainland. You look at Hong Kong, and you have yet to have resolution there in Hong Kong with the mainland, again. So you have the South China Sea and this region which is full of opportunities if you’re looking for things that could represent triggers for a downside in the market. The China trade deal we have this week, the signing of the first part of it. The trade deal part two, that it is suggested won’t happen until after the election.



It’s not the conclusion of a three-year saga. What it is is a comma in the narrative of dysfunctional international relations, and that story continues on. China is, as of this week, no longer going to be considered a currency manipulator. We have 86 pages of detailed concessions on both sides, which mark up very positive headlines if you’re talking about how the news media presents it. And those headlines have been more positive than less positive over the last co...

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