By Eric Peters, CIO of One River Asset Management
Arrogance: Having lived through many developed and emerging market crises over my 35 years, patterns repeat, rhyme. First comes a system that is materially out of balance. Such things take years to develop, which means private sector incumbents, politicians, policy makers, central bankers too, have figured out how to benefit from the imbalance persisting, which makes it likely that it does. The longer it goes on the more over-confident they become that they can contain it, control it. Arrogance. There’s corruption too, at least around the edges (rating agencies in 2008).
Concern: There comes a time when that system shifts from a state of perpetuating itself to collapsing in on itself. It rarely happens all at once, but unfolds over weeks, months, sometimes longer. Covid was really fast, rare. And as system reverses state, the incumbents who were once rather arrogant begin to grow concerned. At least some do. The smartest ones know that if you’re pretty sure that at some point there will be a panic, make sure you’re amongst the first to exit. And this is one of the many interconnected processes that leads the system to turn on itself.
