RITHOLTZ and BOAZ and THE UNKNOWNS

The Former Suffolk Down in the Fog

 

RITHOLTZ: ... You’ve discussed multiple problems in multiple areas taking place at the same time. How do you distinguish between what’s a genuine risk, what’s a known risk, and what’s truly an unknown unknown?

WEINSTEIN: So usually, you have your known unknown, like, something is bad, we just don’t know how bad and you can respond to it. So, you know, 9/11 happens, it’s not a good time to buy airline stocks. You know, COVID happens, it’s not a good time to buy airline stocks. ’08 happens, probably you should derisk from financials, even like the moment after it happened. And here, you just don’t know exactly what to do.

So normally, for example, European investment grade trades 5 basis points lower than U.S. investment grade. Now, it trades 30 basis points higher, 25 basis points higher. Is that enough? Europe is going to have a much more severe recession, according to those that pontificate. And so whether or not you underweight or overweight, Europe is all about what do you think happens with Ukraine? Is there a chance it gets asymmetric? What can be done to mitigate? And then at the same time, you have these other theaters, whether it’s zero COVID policy in China may be extending well past the Party Congress, continuing to cause disruption in the economy.

So really, what’s happened is people just feel risk all over. They felt it now for 10 months, and they’re derisking the things that are in their book. And that has led to some things that I don’t view as particularly risky, blowing out as much as things that I do view as risky, and that’s created some interesting distortions, interesting opportunities.

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