I have came across some interesting perspectives on risks previously over here and here. This post by Paul Krugman—where he quotes his discussion with Jim Chanos—particularly caught my attention. While the Nifty 500 has dropped 16% since September 2024 and showing no signs of recovery, Jim Chanos is talking about US stock market which remains strong.
The one thing I’ve learned after 40 years of running money is that my idea of where the markets are going is pretty much worthless. What you can do at any given time in market cycles is look at things like sentiment and valuation that give you an idea of what kind of risk you’re taking. It’s not necessarily a timing mechanism, but should anything go right or anything go wrong, what type of risk are you incurring? And right now, I believe pretty strongly that risks are pretty elevated for lots of reasons. We can get into them. But valuations are very, very high. And they’re very, very high on what are basically all-time high corporate profit margins, which used to mean revert, but don’t apparently do that anymore, as you know better than I do.
And then you’ve overlaid on this a really, really set of new political economic risks that could really take things in all kinds of different directions with unintended consequences. There’s elevated valuations on elevated profitability with a dynamic that is somewhat new in the political sphere.
A little later in the post.
…markets sometimes refuse to acknowledge what’s right in front of their noses, which seems relevant to our current situation.