Market Fragility and the Reinforcing Panic Loop

Published on
March 23rd, 2020
54 minutes

Market Fragility and the Reinforcing Panic Loop

The Interview ·
Featuring Michael Green and Srinivas Thiruvadanthai

Published on: March 23rd, 2020 • Duration: 54 minutes

What happens when leveraged companies that have little tolerance for risk encounter one of the greatest exogenous shocks in macroeconomic history? This is the question that Mike Green, chief strategist and portfolio manager at Logica Capital Advisors, and Srinivas Thiruvadanthai, director of research at the Jerome Levy Forecasting Center, attempt to answer in a wide-ranging conversation about the long-term consequences of the COVID-19 pandemic. They argue that the knock-on effects of this crisis are made worse by very high debt levels and that, while the coronavirus will sweep away thousands of overindebted entities, resilient market actors will nevertheless be able to emerge from this chaos stronger than ever. Filmed on March 11, 2020, in New York.



  • MC
    Mario C.
    26 March 2020 @ 06:16
    Michael, Srinivas, very interesting interview, as always between you both. Big but: the part on Japan, cash, interest rates... puzzles me. If Japan wanted inflation, they just would need to raise interest rates. On one side, if that would steepen the yield curve, that would save the local private financial system (mainly local banks, insurers). You are saying it would create more revenu since Japan population is cash rich in deposits. But it's not the young generation, who has living standards and consumption capacity much below their parents/grand-parents. It's the elder generation (the grand parents) that are cash rich. No way will they increase their consumption, and create inflation. And this would be a cash transfer from highly endebted government to elder generation. How would the government finance this, knowing the Japanese government is already running massive fiscal stimulus. It would either deteriorate even more it's fiscal situation, or the government would need to raise taxes even more, reducing consumption. So please point where I am totally wrong, and why your solution actually make sense. I would be glad to be convinced your solution is good and i misunderstand the situation and dynamics. PS: I am a long term resident in Japan, and think have some grasp about the local dynamics
    • MG
      Michael G. | Contributor
      14 May 2020 @ 19:49
      "How would the government finance this, knowing the Japanese government is already running massive fiscal stimulus. It would either deteriorate even more it's fiscal situation, or the government would need to raise taxes even more, reducing consumption." That's exactly the point -- the BoJ would simply buy the bonds and depreciate the yen, ie direct monetary financing.
  • kk
    karan k.
    12 April 2020 @ 05:06
    To Mike's point at 29:19:
  • AP
    Ash P.
    26 March 2020 @ 03:15
    Mike - waaaayyy too many Mike Greens on twitter. I want to you follow you but it would help if you shared your handle. Great interview - love your work man.
    • MW
      Max W. | Real Vision
      26 March 2020 @ 19:03
    • AP
      Ash P.
      10 April 2020 @ 00:05
      Oh wow. I'm already following you.
  • JH
    Jesse H.
    23 March 2020 @ 18:04
    Generally enjoy listening to Mike and Sri, but found elements of this conversation and tongue-in-cheek humour about a devastating and unusual virus distasteful. Some of these comments won’t age well at all. And already in the US we are seeing devastating impacts - human and economic- from this novel virus. Some of my Italian friends not far from where I live, would be furious listening to this. And, now we know that this is NOT a virus that just impacts the elderly. I’d humbly suggest you take this more seriously, and prepare for it coming to a community near you, if not your own.
    • DK
      D K.
      23 March 2020 @ 19:34
      PC police. :facepalm:
    • JH
      Jesse H.
      23 March 2020 @ 20:42
      DK - I am the PC police, really?! Why don’t you fucking tell that to the relatives of the people who are dying, you dumb shit?! Sorry, don’t normally employ language like this on RV, but I find your comment disgusting. This is a serious humanitarian crisis, and you have the gall to tell me I am being PC by being respectful of that? Stay safe - maybe you will realise your foolishness when this v nasty pathogen comes to your neck of the woods. Good luck.
    • DK
      D K.
      23 March 2020 @ 21:43
      Jesse — I believe in the right of people to express what they wish in free speech. Including your previous response to me. People have to stop finding offense everywhere. And yes, people WILL say the ‘wrong things’. That’s life.
    • MH
      Martin H.
      23 March 2020 @ 22:46
      Grow a sense of humor Jesse H. and get your knickers off your ears. Cripes... this thing will almost certainly kill my wife if we get it and we laugh about it. Doesn't mean it isn't been taken seriously. I find your venom DISGUSTING.
    • WM
      Will M.
      29 March 2020 @ 18:58
      Jesse, sorry to here about your wife susceptibility. But I do think you are overly imposing your concerns on everyone else here, perhaps understandably because of your particular personal situation. I am in my mid 60s but with no other health concerns. It is what it is, and its going to have less of an impact by far than a more transmissible flu pandemic that we are already overdue for. Best of luck to you and your wife.
  • CG
    Christine G.
    23 March 2020 @ 10:37
    With regard to expectations about what government can do, we expect government to function. We expect the response to this crisis to be similar to the response to the swine flu when tests for the disease were widely available within two months of the outbreak and a vaccine was available within eight months - that is clearly not happening. Why? Because this administration is incompetent. Trump did away with the structure to deal with pandemics; the people he has appointed to deal with this problem, as with other appointments, are incompetent. Our government's terrible response has implications for our country and for others because the US cannot play its typical role of leading.
    • WM
      Will M.
      29 March 2020 @ 17:59
      Wish you would give up with your "hate Trump" politics Christine. Almost all politicians the same and the next bunch may well be just as bad in the other direction. Martin Armstrong nails the politician problem down pat.
  • DS
    David S.
    23 March 2020 @ 08:04
    A rational discussion for March 11th, but a thousand miles away by March 22nd. DLS
    • MG
      Michael G. | Contributor
      23 March 2020 @ 12:21
      Yes and no. You can check my Twitter feed for more recent thoughts, but I continue to believe “what comes next” is more important than current events. The markets no longer discount events, they react to flows. The source, direction and character of those flows may shift unexpectedly.
    • DS
      David S.
      23 March 2020 @ 14:55
      I will always give you, Dr. Thiruvadanthai and RVTV a thumbs up. It was a Herculean effort for RVTV staff to get this presentation out with the office closed and everyone working from different locations. MARKET FRAGILITY AND THE REINFORCING PANIC LOOP is a great title for both March 11 and March 22. I should have expressed myself better, but the tone of the conversations would have been markedly different on March 22. This was an observation, not a criticism. It shows how rapidly things are changing. I was ready for the market reaction and its severity because you and RVTV explained that a black swan would do just this. In additions, Mr. Pal's work on the Coronavirus effects on humans and the markets around the world is groundbreaking. RVTV has fulfilled its mission of educating all of us on the current crisis. Thanks to everyone for their dedication and insights. DLS
    • ar
      andrew r.
      23 March 2020 @ 17:14
      Mike, what is your Twitter handle?
    • DH
      Dabangg H.
      23 March 2020 @ 20:08
      11 days is a long time for an exponential curve. The tone of this conversation seems a bit off, because we have 60K cases now vs maybe <600 on March 11. I understand these gentleman are not undermining this even, still.....
    • MG
      Michael G. | Contributor
      23 March 2020 @ 21:27
      Andrew, Twitter is @profplum99. DLS, for the record, Mr. Pal has not done significant work on coronavirus and I have personally reprimanded him for not acknowledging this. He HAS done significant work on the financial system fragilities and he should be lauded for this work. For those asking about the measles analogy, prior to the discovery of modern antibiotics CFRs (case fatality rates) for measles were very high (3-4%) due to the secondary infections, primarily bacterial pneumonia (hence the significant decline in mortality post WWII). Finally, Dabangg, exponential curves are extremely sensitive to initial starting conditions. The Imperial College report of Neil Ferguson is an utter travesty. His work on H5N1 in 2008 was off by nearly two orders of magnitude despite very modest mitigation efforts. I expect we will find this event has similar dynamics and in my opinion authorities should be held accountable for the economic damage they have facilitated.
    • DS
      David S.
      23 March 2020 @ 23:38
      Michael G. - I also agree that authorities should be accountable for the good job some did and the terrible job other did. Are you referring to the upcoming elections? DLS
    • JO
      Johnny O.
      27 March 2020 @ 10:22
      Yes, the Imperial College Neil Ferguson prediction of 500,0000 U dead has been revised to 20,000. This was the report that panicked Boris into lockdown (reversing the herd immunity plan) and energised the Trump admin. The new idea is that many more people may have already suffered a mild case of this. Ferguson even thinks that there will be enough ICU beds, but I think he also said the lockdown "to flatten the curve" is still key to this. We need to isolate and protect old people, but others will need to get back to work. Confidence that the hydroxychloroquine treatment works would give people confidence to do so.
    • LS
      Lemony S.
      27 March 2020 @ 15:04
      Please please please people, read Michael G comments below this. The lack of basic statistical knowledge and mathematics, or the ignorance of what we are dealing with, are leading to panic that is FAR more damaging than this virus. This virus will be AT WORST a bad flu season which we have already seen, and it is almost certain already that if you objectively compare it to recent bad flu seasons, its damage will be much less. I love NNT but on this issue his characterization of this particular virus gives him a faulty premise in which subsequent conclusions are not accurate or relevant. Michael G points out the embarrassing nature of the media, but in particular, the Imperial college, below.
  • BK
    Blake K.
    23 March 2020 @ 21:11
    Love all of the Real Vision content but Mike Green...C'MON MAN!?? Referring to COVID as a "localized threat" is foolish and insulting to those around the globe who are battling for their lives currently. Very weak and even more arrogant. Otherwise, good discussion.
    • SC
      Shawn C.
      24 March 2020 @ 03:31
      This was filmed March 11, the US has basically shut down with NYC at the epicenter. Can you forgive RV for taking 12 days to edit and deliver? Their words were appropriate at the time.
    • LS
      Lemony S.
      27 March 2020 @ 14:59
      It still is a localized threat, in the USA, and even in Europe and Asia. I post examples when I speak of conclusions (I'm guessing guys like you don't, like the media), so here you go: NYC, Washington, California, New Orleans. Hmm. Sweden is open. Italy and Spain are identical in demographics and healthacre delivery, both socialized and old; their old are really old and unhealthy (fat and hypertension, smokers). Asia is fine in S. Korea and Japan. China is the problem, as usual. What's more, this is no worse, and at this point can't possibly be (if you follow stats) worse, than a bad flu season (which all those places had as recently as 2017!) ... unless you read the (fake) news. Facts, sir, facts.
  • BS
    Benjamin S.
    24 March 2020 @ 09:45
    Discussing a high mortality rate for an older population and its knock-on-effects to the pension system and base dynamics is a fine conservation to have behind closed doors. Discussing that openly, along with projecting it to be a common cold variant in 5 years, comes across as dismissive. I agree with other comments that this will not age well.
    • LS
      Lemony S.
      27 March 2020 @ 14:54
      I thought it was refreshing that someone actually said out loud what most people think. That's what you get in a world where lies and PC cover everything up. I smiled since it actually forces people to think clearly. The definition of sanguine, actually.
  • DL
    Dan L.
    24 March 2020 @ 17:18
    At 14:52, what was the Theory he cited where investment is the "profit source?" Had trouble understanding it because it was said quickly and I'm unable to google something close...
    • MG
      Michael G. | Contributor
      25 March 2020 @ 11:35
  • SS
    Steven S.
    24 March 2020 @ 02:23
    I have an incredible amount of respect for Mike Green. I think he's incredibly smart. Good, informative discussion. Minor point: I think both Mike and Srinivas do the audience a disservice by speculating on the future of SARS-CoV-2. We have no idea if it will become a seasonal infectious disease. I try not to venture too far into finance, and it may be a good idea for finance-trained folks not to wander too far down the domain of virologists, population health care researchers and immunologists.
    • SM
      Shivani M.
      24 March 2020 @ 15:57
      The question was "what happens if?" It would be irresponsible for an economist to refuse to consider every possible outcome. This is one.
  • NP
    Nick P.
    24 March 2020 @ 11:37
    "I'm really excited to infect a new guest." hahaha, he said that. Mike Green.
  • BP
    Brian P.
    24 March 2020 @ 05:38
    Hmmm, "perception of a boom" sounds like a bear market rally. This downturn has been so forceful, it doesn't feel like it'll die that quickly. Maybe bounce to the 50 fib or something. So what I got, was short term, don't rule out a strong reversal, but at the same time, keep an eye on the corona virus events to see if things are getting better or worse. At the same time I'd be watching the debt markets which are currently cracking under pressure, but being super glued back together by the Fed... Very interesting times we live in. All that new liquidity will eventually find a home in equities... as always the question is of "when."
  • MM
    Mary M.
    23 March 2020 @ 13:01
    Disappointing. This reminds me of Nassim Nicholas Taleb's comment on the naive empiricism of comparing a fat-tailed process in the sub exponential class to a thin-tailed process with Chernoff bounds. Measles vs. a novel virus which has a Case Fatality Rate that is ten times more lethal and as yet has no vaccine, or treatment. We won't all get measles at the same time and bring down a health care system.
    • MG
      Michael G. | Contributor
      24 March 2020 @ 04:35
      You didn’t actually listen. The discussion referred to measles pre-vaccine and antibiotics
  • GF
    George F.
    23 March 2020 @ 23:49
    Grant Williams exits and Mike Green enters: superb interviewer
    • RM
      Robert M.
      24 March 2020 @ 04:24
      Was thinking the same. Excellent interview.
  • CD
    Cheryl D.
    24 March 2020 @ 02:31
    Excellent - great minds at work. Love listening to that!!!!!
  • SS
    Steven S.
    24 March 2020 @ 02:30
    General comment for RV: perhaps it might be a good idea to interview a virologist/public health expert. I'm a medical genetics professor at a major US research university, and I'm not qualified to give an audience intelligent information regarding the COVID-19 pandemic. I think a bona fide virologist/public health expert would substantially aid the RV viewers in understanding the current situation ...a biological, healthcare situation.
  • MW
    Max W.
    24 March 2020 @ 02:28
    I thought it was great. I plan to rewatch this. A lot of information on this website is beyond me and I have a lot of learning to do.
  • RW
    Raymond W.
    24 March 2020 @ 00:01
    I wish they had filmed this today rather than 12 days ago.
  • BM
    Beth M.
    23 March 2020 @ 15:50
    Wow...almost two weeks old! I don't understand why they wouldn't put this out two days after it was filmed?
    • km
      kristopher m.
      23 March 2020 @ 17:47
    • MH
      Martin H.
      23 March 2020 @ 23:06
      Editing, production etc take time and I guess lots of the premium content gets priority.
  • MH
    Martin H.
    23 March 2020 @ 22:43
    Sit down and infect a new guest... and I thought my humor was black!
  • ND
    Nitul D.
    23 March 2020 @ 19:30
    A great macro conversation, covered a lot of topics - financial, social and political.
  • HJ
    Hollis J.
    23 March 2020 @ 17:44
    Great conversation. Would have been nice to see in a more timely fashion.
  • RM
    Robbie M.
    23 March 2020 @ 16:39
    “I’m really excited to sit down and infect a new guest today” lol!!!
  • PB
    Pieter B.
    23 March 2020 @ 16:09
    Thanks a lot for another great conversation Mike & Srinivas!
  • TS
    Tim S.
    23 March 2020 @ 15:13
    Thank you for bringing up the morbid aspects of COVID-19. That is one of the first things that went through my mind when pondering the knock-on effects. As I get closer to that age group I embrace a more concise view of mortality. Good discussion.
  • VK
    Vaclav K.
    23 March 2020 @ 12:04
    Measles don't seem to have same mortality with 0.2% (CDC estimate) compared to Coronavirus estimate of 1.4% (Wiki).
    • CL
      Claudio L.
      23 March 2020 @ 13:46
      The world population was much smaller during the measles time combined with many other factors such as fewer international travels, interconnectedness, tourism, etc.
  • ST
    Simon T.
    23 March 2020 @ 12:16
    Interesting discussion, thank you ... could debate further about all of these points, perhaps soon ?
  • NR
    Nathan R.
    23 March 2020 @ 11:49
    Building the framework to position for what comes next. These types of considered discussions provide tremendous value by preparing the mind to think ahead. Yes, we must trade the current markets but spotting dislocations to come is invaluable. Outdated? It’s called Real Vision for a reason. Many thanks
  • VK
    Vaclav K.
    23 March 2020 @ 11:40
    Wearing no masks?
  • NC
    Nick C.
    23 March 2020 @ 05:26
    When do we get to hear what Grant Williams is leaving to go do?
    • JC
      Jack C.
      23 March 2020 @ 11:23
      He is still writing Things That Make You Go Hmmm
  • js
    john s.
    23 March 2020 @ 09:30
  • SB
    S. B.
    23 March 2020 @ 08:04
    The piece about supply and demand was very interesting.
  • DS
    David S.
    23 March 2020 @ 07:10
    If 30% of Fidelity’s investors over 70 were 100% invested in equities, that one point alone seems like over exuberance. DLS
  • DH
    Dabangg H.
    23 March 2020 @ 07:02
    Vanguard 2035 is down 26% from peak. S&P down 32% from peak. Not much difference though...hmmm.