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Passport's John Burbank: "The Next Crisis May Look Like A 1987 Crash"

Tyler Durden's picture




 

John Burbank, whose Passport Capital has grown from $800K to $3.9 billion in 14 years (not your typical basement-dwelling, tinfoil blogger) was interviewed by Bloomberg TV on Friday, discussing his outlook on the US economy (bullish on San Francisco, bearish on the rest) which he defines as an "anomalous high change, low GDP" environment: "a lot of the change that is happening is degrading the GDP."

And while he is generally bullish on US companies, he is "very bearish" about liquidity, driven by what he calls a "tightening environment" (even with the Fed and BOJ still injecting billions under ZIRP and the ECB expanding its LTRO for the second time in 3 years, having pushed ZIRP into NIRP) and bad liquidity in the market.

Where it gets interesting: asked what could happen during the next crisis, Burbank's response: "it could fall fast"... "there is the possibility of a 1987 dislocation that does not reflect long-term economic stress but could reflect illiquidity in the market."

Furthermore it is good to see that unlike a legion of clairvoyants who "know" with pinpoint accuracy just where the S&P will close the year, Burbank does not fall for the usual predictive BS: "It's impossible to easily say: here what's going to happen because we're in a situation that nobody predicted and we've never confronted before.... The Fed's Fisher will be leading a tightening effort that Yellen may not have wanted." Asked if that could be the catalyst for a 1987-style correction, Burbank is laconic: "Could be. Illiquidity is a primary driver; it works both ways: can drive prices up and drive prices down."

His conclusion: "When there is a signal to sell, there won't be a lot of buying." That is assuming selling hasn't been made illegal by then or, as the recent bankruptcy of Banco Espirito Santo showed, if and when the time to sell comes, all sellable stocks are suddenly halted indefinitely while a committee of conflicted banks decides behind the scenes that no event of default has actually occurred.

Full interview below:

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Sun, 08/17/2014 - 15:15 | 5105719 ekm1
ekm1's picture

Incomplete explanation.

It will be far harsher than 1987, it will be 1987 + 2008.

 

No naked derivatives existed in 1987.

Sun, 08/17/2014 - 15:18 | 5105736 LawsofPhysics
LawsofPhysics's picture

Yes, and far more people had actual income with purchasing power.

rates are going to zero (think about where rates were in 1987), encouraging even more bad behavior...

Sun, 08/17/2014 - 15:22 | 5105749 ekm1
ekm1's picture

Oil was $20/barrell

Now it's 500% higher

 

This is oil in hyperinflation, costs of doing business are in hyperinflation

Sun, 08/17/2014 - 15:26 | 5105762 strannick
strannick's picture

87?

That we could be so lucky.

The next crash will make 2008 look like 2007

Sun, 08/17/2014 - 15:37 | 5105784 ZerOhead
ZerOhead's picture

If pumping the market created an economy boosting 'wealth effect'

Will dumping the market create an economy crushing 'poverty effect' ?

 

And if so will Lululemon and 70% of the consumption based economy still be around at the bottom of the next 'downward dog'?

Sun, 08/17/2014 - 16:54 | 5106022 disabledvet
disabledvet's picture

That's the Great Lie...that there is such a thing as "the wealth effect." In fact the market rises because it is creating poverty "and everything else is identity politics."

Stay away from TRADING gold as dollars are becoming very scarce as energy production in the USA soars (certainly a silver standard of twenty bucks an ounce can be created here.)

There is a massive amount of liquidity in this market and simply put the Pro's have to be in it to win it. Those who have maintained doubt are now having their swamps of stale dollars and even more stale rhetoric drained.

You can definitely get a return on dollar denominated cash in excess of 4% right now...you just gotta know where to put your savings.

I would avoid the totality of the private debt markets ("mezzanine finance as it is called) save for convertibles...and those should be handled only if you have an understanding that math does in fact exist.

Yes...the Dow can go to twenty thousand from here. Yes, interest rates on the thirty year can drop below 1%.

And I'm talking "in the next six months" not "yes, anything can happen because it's the future!"

Sun, 08/17/2014 - 17:11 | 5106066 NidStyles
NidStyles's picture

You sound like a paper pusher, so I will just do the smart thing and ignore you. 

Sun, 08/17/2014 - 19:30 | 5106481 Headbanger
Headbanger's picture

Gee, maybe I'll get laid a lot like I did in '87 too!

It's only.... 27 years ago..

Then again... Never mind..

Sun, 08/17/2014 - 22:26 | 5106931 old naughty
old naughty's picture

"...may look like..."

Aren't we constantly stride to greater, broader, eh...bader?"

Mon, 08/18/2014 - 00:19 | 5107391 Drunk In Church
Drunk In Church's picture

I agree.  A collapse followed by significant deflation.  But it has to happen, so why worry about it?  Bitchez.

Mon, 08/18/2014 - 07:45 | 5107898 spinone
spinone's picture

A collapse, followed by hyperinflation, followed by currency abandonment.

Sun, 08/17/2014 - 18:32 | 5106334 CHX
CHX's picture

Yes, I think that was proven to be the case in the last crash. The middle class has already been effectively killed. IRP, NIRP and easy credit are the only life-support keeping this "economy" up while at the same time eroding the last pillar and hope for a real recovery. Any entity that is in debt cannot save, unless you take up credit to buy/gamble the S&P at/near the FATH now. Riiiight. Fool me once... 

Sun, 08/17/2014 - 15:36 | 5105801 Escrava Isaura
Escrava Isaura's picture

Article says:

“John Burbank, whose Passport Capital has grown from $800K to $3.9 billion in 14 year.”

 

Key Point

Sometime I wonder what I read come from deluded people, or, if they are just part of a massive Ponzi scheme.

 

Sun, 08/17/2014 - 15:53 | 5105847 Caviar Emptor
Caviar Emptor's picture

Ponzi? Check
There won't be a market crash. Algos will still trade with each other long after thermonuclear war wipes out the humans.

The market is Fed liquidity driven. The market will remain a barometer of the inflation side of biflation.

Sun, 08/17/2014 - 16:01 | 5105871 Escrava Isaura
Escrava Isaura's picture

Thanks, Caviar.

I thought, for a second, that I was alone.... here.

Sun, 08/17/2014 - 18:04 | 5106257 BobPaulson
BobPaulson's picture

You seem to have a fan club that down arrows every comment you make, regardless of what it is.

Sun, 08/17/2014 - 18:09 | 5106270 BrosephStiglitz
BrosephStiglitz's picture

What's your issue with the fan-club bro?  -1 for you..

If you don't have at least one or two haters, you have not been a Zerohedger for very long.

(Great name by the way.)

Sun, 08/17/2014 - 19:02 | 5106424 BobPaulson
BobPaulson's picture

+1 for you, and I will take that down arrow as a compliment!

Sun, 08/17/2014 - 21:41 | 5106772 Escrava Isaura
Escrava Isaura's picture

And, how about me?

Can I take down arrrows as complement, too?

Or is it too late?

 

Sun, 08/17/2014 - 15:59 | 5105865 Terminus C
Terminus C's picture

Yep, he started right at the bottm of the ponzi cycle.

Sun, 08/17/2014 - 23:36 | 5107222 TrulyBelieving
TrulyBelieving's picture

The article said that Spain made selling illigal. Now in a free market that could never happen. With eyes wide open it would seem easy to acknowlege the complete control these bankers and govt cohorts have over the market, and the manipulation going on. Much to the demise of the producers which are actually the ones paying, 'something for nothing' just isn't real, but it makes the criminals rich. 

Mon, 08/18/2014 - 02:38 | 5107622 TheCosmicTaco
TheCosmicTaco's picture

Great point, sir.

 

" Gee, Thelma, I wonder where most of the four trillion dollars that nice man Mr Bernanke printed ended up..."

Sun, 08/17/2014 - 16:24 | 5105933 Omen IV
Omen IV's picture

Oiil - $9.60 circa June 86'

See thru buildings

Sun, 08/17/2014 - 17:10 | 5106057 disabledvet
disabledvet's picture

I don't see whale oil traded anymore. Nor salt. I don't see icebergs be moved like they were back in day either.

"Price collapse equals default" save for treasuries because the Fed...and the ECB...and the BoJ...can and DO print "debt into existence." The US Fed is now tapering...Japanese "growth" is MINUS 7 percent and Europe is heading right back into recession. (Depression actually.) trying to cozy up to Russia as a "solution" simply has no basis in fact or reality.

Russia itself is in a recession.
The worst performing markets by far this year are in Europe's East.

Russia and "working with Russia" is making the problem worse not better.

This is one reason why acknowledging that the UN exists is a good thing. "All problems will be settled in Berlin"? Hitler is laughing his balls off right now. What kind of "security" are the French, Germans and Russians offering here?

Sun, 08/17/2014 - 17:14 | 5106074 NidStyles
NidStyles's picture

Russia's economy has been expanding for the past 7 years. Therefore, ergo, you are wrong.

Sun, 08/17/2014 - 17:57 | 5106242 BrosephStiglitz
BrosephStiglitz's picture

Very bullish on Russia macroeconomic fundamentals.  Not so bullish on the Russian institutional environment.

Sun, 08/17/2014 - 18:07 | 5106265 BobPaulson
BobPaulson's picture

Didn't Sock Puppet in Chief say they make nothing in Russia?

Sun, 08/17/2014 - 18:15 | 5106287 BrosephStiglitz
BrosephStiglitz's picture

Probably, and he might be half-right. They don't have to make much of anything though.  They are predominantly a commodity exporter, so they don't add value they simply have all the value-adding manufacturers in other countries by the balls.

They also have extremely low debt levels..  That is why NATO is trying to destroy the Ruble and bring the Oligarchs to their knees at any cost.  Would set back the BRICS countries' plans a fair bit.

Mon, 08/18/2014 - 03:00 | 5107645 TheCosmicTaco
TheCosmicTaco's picture

Russian oligarchs keep their wealth in rubles? Nyetski.

 

Dollares... Da! Da! Da!

 

Mon, 08/18/2014 - 05:06 | 5107730 BrosephStiglitz
BrosephStiglitz's picture

That's my point?  By trying to isolate the Russian financial system, and isolate Russian oligarchs from global financial markets the oligarchs will face three options- store money in foreign financial markets with risk of an asset seizure/freeze, repatriate financial assets home where the risk of a currency collapse is possible, plow everything into physical assets as best as possible and pray.

Physical assets are also at risk in foreign territories.

That is the western strategy.  Their only strategy really, aside from starting proxy wars on Russian borders.  Russia has them outgunned on energy and commodities, and is also most likely about even in terms of geopolitical leverage as long as the other BRICS trust them.  Furthermore, Russia has the luxury of not being perceived as a warmonger whereas the US is now perceived to be a warring nation by most.

Sun, 08/17/2014 - 17:38 | 5106173 BrosephStiglitz
BrosephStiglitz's picture

@ekm1

This is not oil in hyperinflation.  This is oil in the real economy ie: a mostly supply/demand driven relationship.  That is what is so scary.

I believe most of the "price inflation", although now bleeding over into the money supply, was most likely in financial assets.

Sun, 08/17/2014 - 17:55 | 5106232 Escrava Isaura
Escrava Isaura's picture

BrosephStiglitz

Great, and correct point about oil.

And you can clearly see it on the chart below.

http://en.wikipedia.org/wiki/Price_of_petroleum#mediaviewer/File:Crude_o...

 

 

Sun, 08/17/2014 - 18:45 | 5106369 ekm1
ekm1's picture

If oil and other commodities were stored as collateral for derivatives, price would be 50% less per supply/demand including bona fide hedging

Sun, 08/17/2014 - 18:59 | 5106418 Escrava Isaura
Escrava Isaura's picture

ekm, hard to say, but unlikely 50%. Flakmeister had it around 20%, if I am not mistaking.

Sun, 08/17/2014 - 22:47 | 5107010 Woodrox
Woodrox's picture

400% higher

Sun, 08/17/2014 - 15:22 | 5105750 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

Is Obama a homo?

Sun, 08/17/2014 - 16:00 | 5105868 Terminus C
Terminus C's picture

Are you a troll?

Sun, 08/17/2014 - 16:57 | 5106026 Escrava Isaura
Escrava Isaura's picture

Terminus C,

No! Leonardo Fibonacci2 has issues around his sexuality.  


Sun, 08/17/2014 - 17:13 | 5106072 mt paul
mt paul's picture

maybe he's a

trollo

Sun, 08/17/2014 - 19:00 | 5106286 Escrava Isaura
Sun, 08/17/2014 - 20:15 | 5106574 oudinot
oudinot's picture

Leonardo: Are you a 'homo'?

That's all you moan about.

You have an issue with your sexuality, no doubt. 

Sun, 08/17/2014 - 15:24 | 5105756 zorba THE GREEK
zorba THE GREEK's picture

The Fed can't and won't let the stock market crash. A crash in stocks would not only cause investors to lose everything, since most are on margin accounts, but every pension fund both private and public are heavily dependent on stocks because of the low bond yields. The economy would collapse and chaos would ensue.

Sun, 08/17/2014 - 15:26 | 5105766 LawsofPhysics
LawsofPhysics's picture

Bullshit.  The economy as we know it would collapse, yes, but that chaos would most definitely be neighborhood dependent.

Sun, 08/17/2014 - 15:30 | 5105782 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

BS again. The economy is going to crash no matter what the Fed does. Average joe six pack gets the bag and the big boys will have the short of a lifetime. This is an effective weapon for regime change. Right golfing Kenyan pigeon?

Sun, 08/17/2014 - 15:33 | 5105787 LawsofPhysics
LawsofPhysics's picture

"short of a lifetime" -- bullshit.

 

Full faith and credit.

 

Congrats on that short, too bad those paper promises don't mean shit anymore.

Sun, 08/17/2014 - 15:36 | 5105798 ekm1
ekm1's picture

People who do not do any real work do not understand the concept of:

 

PROFIT = REVENUE -..........(WAIT FOR IT).......COST

 

Onfly few are paying attention to COST of doing business, mostly those who actually produce something like farmers and small manufacturers

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