Subject: Re: OT Booms and Busts
>>In sum, a market crash today is unlikely to result in the brief and relatively benign economic downturn that followed the dotcom bust. There is a lot more wealth on the line now—and much less policy space to soften the blow of a correction. The structural vulnerabilities and macroeconomic context are more perilous. We should prepare for more severe global consequence<,.


There’s truth in that. But many people will be faked out early.

What’s truly interesting is how it plays out after the initial shock.

Because this time, we have a playbook. And it has worked.

We rolled it out after we voluntarily put our economy—and much of the world’s—into a coma just five years ago. We literally shut it down. Trillions of dollars in stock investments rushed for the exits.

And then we learned something critical.

We learned that we can rescue the system. We can lead with fiscal shock-and-awe—putting trillions of dollars directly into the hands of anyone with an internet connection almost immediately, and into the hands of those without one within days.

We also learned that the Treasury and the Fed can go further—buying stocks and indexes outright to stabilize prices.

All of this has occurred within just the past sixteen years.

If it happens again, stocks and Treasuries will be propped up. Interest rates will go to zero or below. Investors will be told not to worry about owning businesses whose revenues and profits will soar—artificially—as newly printed money floods into the hands of consumers who are presently broke.

Shower the economy with cash in soon-to-be devalued dollars, and the government carries the same debt burden—just in weaker currency.

The real massacre won’t be in equities.

It will be in long- and intermediate-term bonds. Credit quality will be largely irrelevant.

The Fed may temporarily halt that damage—but only briefly, setting the stage for an even more violent long-bond collapse later.

Here’s what we learned—and what I believe is likely to happen again:

People will still buy plenty of Coke. They may buy MORE at HIGHER prices! Because they’ll do it with far more cash in their pockets than they have today—while paying twice as many devalued dollars to do so.

Consumer baselines matter. Most people who buy Coke today can’t handle a $500 cash emergency. In a crisis response like 2020, they suddenly can. For them, a stock market crash is a Netflix sideshow. And a cash bonanza. Broke now--cash THEN. Like 2020.

Don’t worry about Coke.

Worry about Coke bonds.

And that may explain why absolutely pristine, fully guaranteed credit quality—despite slightly higher yields—holds no attraction for Buffett