Whether you’re a stock market whiz or just a fan of Hollywood’s finest actors, it’s unlikely you haven’t already seen the 2015 Blockbuster “The Big Short”. The movie tells the story of the 2007-08 GFC crisis, featuring cameos by big celebrities such as Margot Robbie and Anthony Bourdain. The movie aims to educate everyday people on the crisis, one of which caused such heart ache across the United States and the rest of the world. Underlying the GFC narrative, the movie teaches us some vital lessons that have proven true in the current crisis we are facing.
Human interaction can actually be an indicator to the health of the economy.
To start this off, by human interaction I am talking about the day to day conversations we have with people around us. In the Big Short we see Vinny Daniel (Jeremy Strong) and Danny Moses (Rafe Spall) go visit some home owners that were overdue on their mortgage payments. When they visit these homes, they find out that these people living there are just renting and the home owners are the ones defaulting on their loans. The families renting these houses claim they have always paid rent on time, and become quickly concerned as to why the house may be bought back from the bank. The second interaction we see is Mark Baum (Steve Carrel) talking to younger mortgage brokers about how easily they were signing off mortgages. It then hits Carrell and his team that there was no way these people would pay back their mortgages in 10 lifetimes. For Carrell to be sure about his short position, he had to get evidence by human interaction.
In the same way, if you talk to your neighbour or people around you – it can give you an insight into how average everyday people are currently living. My recent conversations with people are never the same, however there is a trend forming that is quite concerning. More and more people are beginning to feel the harsh effects of the virus whether that be unemployment, under employment, failing businesses, deteriorating real estate and tough effects on the middle and lower classes. It is hard to see these effects on the economy as most of us are current locked in our own houses. I recommend speaking to some people around you (from a safe distance of course) and try get a grasp on the reality of the virus. Human interaction in my opinion, can sometimes paint a better picture on the state of our economy than what we see in the media.
Expect the unexpected
If I was tell you in January that a virus will be the reason you will be out of a job for 3-6 months, you would probably ask me what I was smoking. The fact is, not many people really saw this coming. There is an incredible video of Bill Gates on Ted talks explaining to us in 2016 that we did not have the medical investment to contain such a spread.
Now some of you know the story of Michael Burry (Christian Bale). The man that made his firm billions by betting against Banks before the GFC. Now the only reason the banks accepted such a risk at first, was that there was heavy incentive to do so. Not even the Big Banks at first believed they would ever be exposed by taking such risk against Burry. In a similar way, we saw Bill Ackman turn a $27 million investment into $2.6 Billion as the markets crashed due to COVID 19 fears. This was a move that hedged his firm enough capital to re invest into Big Blue Chip stocks as well as Warren Buffets Berkshire Hathaway. So you can’t say no one saw this coming, and the ones who expected the unexpected were rewarded.
It’s more than just money
The Big Short has a depressing ending, as the whole movie build up is on investors hopping on an exciting opportunity. However at the end, we see Carrell become depressed in the failing system around him. He begins to lose faith in humanity, yet at the same time he is about to make a lot of money. We can talk about investing and profiting all day long, but at the end of the day we are all human. People will hurt during a crash, and although we may not even reach the point of a recession, it’s times like these that can be rough for many people. The last lesson we learn from The Big Short is that we are human, and being human comes along with human emotion. The markets run on two human emotions, Greed and Fear. With those emotions embedded into our brains, the markets are built to crash from time to time. All we can do, is ride out the wave and invest our money wisely so we can take an opportunity from a negative.
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