Markets are filled with players and emotions and opinions and arguments. I am not the type that likes to argue much. I usually state my position and if others want to listen, then that is up to them.
There is a proverb that says a picture is worth a thousand words. Pictures can describe complex stories with simple still images. That is why I always remind people to simply Trade the Picture. Pictures can strip away emotion and they can lead you to what is really important.
The president of Stripnomics has posted three pictures. I have posted the pictures below with his permission.
For the Aha moment with these pictures I quote:
Leverage is best employed when the probability of growth is high because if you get caught in a stagnant or negative growth situation you can fall prey to my oft mentioned term, “Gamblers Ruin.”
In gambling, this occurs when you lose your bankroll. In the context of a firm, it is when the firm’s debt can no longer be serviced or restructured.”
First, notice how with Berkshire, Warren knows that there is a time for leverage and a time to reign in that leverage.
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With Lehman, leverage tipped past the point of no return. From the tipping point, Gambler’s Ruin is inevitable.
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With Prologis (PLD), Gambler’s ruin is inevitable. Nobody in the mainstream media is talking about this. YET. Another way to describe Gambler’s Ruin? Ian Malcolm says it best, “Increasingly, the mathematics will demand the courage to face it’s implications.”
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Most famous blowups are due to Gambler’s ruin. Prologis (PLD) will be no different. I haven’t even had time to write about their extremely complex structure that can give rise to abuse. I can’t say for sure if they are abusing their complex structure, but it sure smells like they are to me. Especially with their prolific use of unconsolidated investees.
There are many other firms out there that have suffered from Gambler’s ruin of late. (AIG), Bear Stearns (BSC), Fannie (FNM), Freddie (FRE). That is all fine and good, but there are many more firms who will suffer from it. It is my job as a volatilist to identify these things before they happen. I need to understand volatile situations BEFORE volatility enters the room.
You wonder why the powers that be are blaming short sellers? Because they know that these firms are too highly levered. They know that they allowed them to become too highly levered UNDER THEIR WATCH. So now they are putting out a PR blitz to put the blame on someone else.
Leverage is the problem. Leverage was the problem. Leverage will be the problem next time.
Nothing changes in the markets, just the participants. In any marketplace, the majority of the money always flows to the minority of hands.
Morgan (MS), Goldman (GS), Merrill (MER), Citigroup (C) are not out of the woods.
Neither are many many other publicly traded entities.
As I have stated before, the reddest of red flags is when a company blames short sellers for their problems.
The ban on short selling tells us who the government is trying to lay their problem off on.
Peace
Saturday, April 4, 2026 
