Photo Credit: Hernán Piñera || All in all, you’re just another note on the wall.
When I started blogging, I did more posts that were a series of ideas. I’m doing that tonight.
- These last four years have been happy ones for me. Three of my children have gotten married, and I funded each wedding, even one for a son because the bride was estranged from her parents. I can’t know fully what went on there, but she is a wonderful daughter-in-law, and I can’t imagine that it was her fault. I made the mistake of trying to reconcile daughter-in-law and parents, but the parents were not receptive, to say the least.
- In the process, I now have two grandsons. This is fascinating to me. The older grandson really likes me, and when he sees me, he walks to me and puts up his hands for me to hold him. It’s really special. He just turned one. The other is one month old, and though big for his age, is so tiny. We forget how small newborns are.
- We’re celebrating Thanksgiving on Friday this year as a result. We gave ordinary Thanksgiving to our children’s spouse’s families. We’re happy to accomodate them. On Friday, I am making the turkey, stuffing, gravy, and mashed potatoes. I may throw in some Columbian salt-crusted potatoes as well. My married children who live near me love hanging out together, whether with my wife and me, or without us. We are happily surprised to have them dropping in unexpected. We have dinner together every Wednesday night before going to prayer meeting.
- Now you know more about me. On to the economy and markets. My stock market model is currently predicting 2.01%/year nominal returns for the next ten years. The only era with higher valuations was the peak of the dot-com bubble. Are you happy with the idea that you will earn the return of a single-A corporate bond, but with a lot more volatility? Well, I’m not, even though the stocks I own have far better cashflow yields than the FANGMAN stocks.
- I have proposed to Interactive Brokers the idea that they should offer a bite-sized version of indexed credit default swaps, but only allow retail accounts to short credit, and not go long credit. An alternative to this idea which is a little more expensive is to buy puts on HYG or JNK. Shorting credit is the cheap way to hedge a long equity portfolio, and a few hedge fund managers made big money on it in March.
- My bond strategy yields more than 2%, and has a duration of less than 2 years. I have to admit that I am considering switching some of my equity funds to that strategy. That said, I am not running to do that.
- Now, many have attributed the current rally to Biden getting elected. I am no fan of Trump. Trump and Biden have different and offsetting problems. As such, I think the entirety of the rally stems from the emergence of effective and safe vaccines. It’s even possible that the rally might have been greater if Trump had won, but who can tell?
- I am not impressed with Janet Yellen as Treasury Secretary. This is for one simple reason: she is an academic economist. Academic economists are like people who have a Matchbox car, and think they can repair real cars because they understand a Matchbox car. The economy defies being expressed by aggregates and equations that depend on the aggregates. Studying academic economics is a waste of time.
- Everyone is praising the Fed, except a minority that includes me. I still believe that deep recessions are a good thing that liquidates bad investments and prepares us for higher growth in the recovery. The current Fed can’t bear the least diminution of growth, and so we limp along barely growing as the Fed creates asset bubbles through QE, benefiting the rich, and harming the poor.
- Tell Trump “Don’t Blame the Ump.” Give it up, man. If there were obvious bits of election fraud, it would be obvious to more than a few. There is too much money that could be made from a book, “How I Fought the Election Fraud.” If you have real facts, they are stubborn things. (SIde note: I always used to tell my kids, “Don’t Blame the Ump.” If you lost by the narrow margin of the final call of the ump, it is your fault that you didn’t play better. And I know this well, watching my daughter getting called out on a strikeout, when it was obviously a ball, and it was the last out of the championship game. As scorekeeper for our team I sat directly behind the umpire.
- On the path-dependency of life, Trump is an excellent model. He wasn’t all that great of a businessman, and has declared bankruptcy multiple times for his corporations. Still, he surfed through it, and managed to make himself known during a time when reality television was cool. Though relatively liberal, he reinvented himself to express the frustrated desires of lower-middle class Americans who were suffering from lowered opportunities, telling them it was not their fault, but that of immigrants and foreign powers. Now, what he said was utterly wrong, but you have to understand: most people live so that they can say “It’s not my fault.” The true Prime Directive (sorry, Star Trek) is to find ways to excuse our own sins/faults. That is what it is to be human, and Trump is one of the prime example of this as he is never wrong.
- But path-dependency applies to C19 as well. Trump erred by having his C19 briefings where he said said what he thought, regardless of the truth of it. He promised an effective and safe vaccine before election day, even though any rational calculator (excuse the Russians and the Chinese, who don’t care about their people) would have thought it impossible. On the bright side, we have two effective mRNA vaccines coming up, but it is after the election. Trump may have sped up the vaccines. He also discouraged people from playing it safe in terms of their conduct to avoid infecting others.
- “Never has so much done so little.” That is my tagline for the Fed. They create much credit in the form of bank reserves, and all they do is blow an asset bubble. The banks don’t lend more, and so no inflation arises. Nor does GDP grow faster. If you want to have a target regarding inequality — it is the Fed. Now that said, the real culprits on inequality stem from information technology and foreign trade. The world as a whole is becoming more equal, but the developed nations and China are becoming less equal, because wage rates are slowly becoming more equal. Think of it: why should a steel worker in America earn more than a steel worker in China, adjusted for capital investment, and the skill to use the capital?
- As I have said before, though it is unpopular, those that did not study hard in school, and presumed that growing up in a developed nation would give them a superior income are getting disappointed. The post-WWII experience of US superiority was a one-time event, and now things are reverting to normal. If you do unskilled work, expect to get paid unskilled wages. It doesn’t matter what stupid laws get passed by localities for minimum wages — the same total amount will be paid in wages, but it will be paid to fewer people, while many end up unemployed.
- To those who are in the media, do you want someone with a different voice? Someone who will tell you the consensus is wrong? If so, send me an email. I am available to interact with your questions, and it WILL be different than the common drivel that I hear in the media.
- Biden’s appointees make me think that he is not going to do much. Sorry, Progressives.
Really, I am not that worried over the election of Biden. We have had our share of lousy Presidents. The last good President was Reagan. The beauty of America is that we don’t let anyone national force their will on localities, except in the broadest ways. As such, we usually live happily amid the furor of the world as a whole.
“to express the frustrated desires of lower-middle class Americans who were suffering from lowered opportunities, telling them it was not their fault, but that of immigrants and foreign powers”
Sorry, this is not what he said, but this is the elitist establishment version.
He said that the elitist establishment in the US (and other developed economies) encouraged immigrants to provide cheap labor inside borders, and encouraged capital to go outside the borders to for investment in plant and equipment which provides cheap labor there.
I have lived and worked outside the US for several years and seen it in person.
Matchbox cars maybe.
I’m not sure I understand why you say developed nations and China are become less equal as wage rates become more equal?
I think he meant inside China it’s less equal as it is inside US
Trump is a symptom of Washington DC’s rot, not the cause. Someone like Trump never could have won party primaries if Washington was working. The status quo failed, that is what the Trump presidency means. As David pointed out, Trump had several bankruptcies, he isn’t even a great outsider, just a loud one. But outsiders don’t get elected if the insiders are making it happen.
No matter how much you hate Trump, the way to get rid of him would be for the system to demonstrate they can do better. Instead, the FBI tried to fabricate evidence against Trump (while withholding exculpatory evidence) and the FBI did lame job at the frame up. They don’t uphold their own rules, they don’t respect the office of the president nor the rule of law, so how can they expect others to do so?
Biden is a lifetime bureaucrat, a token of the status quo that has already failed. He is the high school football jock, now in his 50s, but still telling stories of his victory in “the big game” decades earlier. He is lame and sad. Everyone else moved on long ago.
David criticized Trump for saying untrue things about Covid-19, but David does not mention all the erroneous things said by viral experts. According to WHO, CDC and Fauci … the virus is no big deal, masks don’t work, the virus will kill 12% of the population, masks must be mandatory, and a two week lockdown will flatten the curve and get the virus under control. Heck, David didn’t even admit the virus was created in government labs, exported to China where it escaped / was released. Is it reasonable to expect a real estate developer / reality TV host to know what is happening, when the virus experts obviously have no clue?
Trump saw a failed state and used peoples frustration to promote himself, and he saw a failed medical bureaucracy and tried to repeat. In both cases, Trump is the symptom not the disease.
The Fed… every few years there is another financial debacle. The Fed floods the economy with more and more debt, but fixes nothing. The same tired academics get appointed. Rinse and repeat.
Trump got elected because central planning failed, just as it has for thousands of years. Throwing a temper tantrum over his election is just telling the world you still don’t get it.
Fauci could have rolled up his sleeves in a lab, and worked on a vaccine. He could have held fund raisers to get money for private research. He could have made public safety announcements about what types of masks are effective and how to use them properly…. instead fauci threw out the first pitch at a baseball game (which went nowhere near home plate). This is what passes for a so called “expert”.
For its part, WHO initially stated that they were 100% certain that cv19 could not be transmitted from human to human. Those are the experts?
The CDC and the US surgeon general went on TV and begged people to stop buying masks, which were not effective. The surgeon general wanted masks, that he said were ineffective, to be available to hospitals… even though masks are not effective. Again, these are the so called experts talking.
It is only in such a state of confusion that people start looking to fringe sources of information, because the establishment clearly isn’t telling the truth, or just as likely doesn’t know the truth.
Why does David blame Trump? Why does half the country not want to admit that Trump was never the root of Washington DC failure? Trump doesn’t matter to anyone except Trump, but the nations unwillingness to look at the swamp is a problem. Focus on the message, stop obsessing over the messenger.
Hi, could you discuss #13 in more detail? I’ve heard of “pushing on the string” and also listened to a lot of Dr. Lacy Hunt but have trouble following the logic that suggests QE is disinflationary and the Fed’s actions and our indebtedness will lead to low interest rates and low inflation for possibly decades. I don’t follow the logic. It seems you share this train of thought. Can you explain how Quantitative Easing can actually be disinflationary and whether you expect a long period of disinflation/deflation and whether/how it might precede hyperinflation? Do you have a written resource you can point me to that would be of use? Annuity rates have been dropping and I keep waiting for them to pick back up but it seems like under this line of reasoning now may be the time to buy. Thanks for your thoughts; I always find them interesting.
I believe that QE supports “zombie” companies that would otherwise fail. Those zombies produce excess output at an artificially low marginal cost that keeps prices low. This has been the case in Japan for decades. The resulting build-up of debt is also disinflationary, and the cycle reinforces itself: QE, zombies, production, lower prices, debt, QE ….
Regarding #6: I would love to read some more about your bond strategy, maybe you could do a post about it, I would find that very very interesting. Kind regards form germany!
In the interest of full disclosure, it would be nice if David admitted he lives outside Baltimore in the shadow of the NIH and Johns Hopkins. Baltimore is a wrecked city with little left besides federal agencies, federal contractors and urban blight. David can’t really point out (without damaging his business) what a disaster these bureaucrats have been on so many diseases — from SARS to bird flu to Ebola to the covid virus. These people would have lost their jobs working at McDonald’s fry station, but in the federal bureaucracy they get automatic cost of living increases and eventual promotions no matter how badly they mess up.
Trump promised to drain the swamp, and instead he just kind of pushed it around his plate and played with it some. That might be a good reason to vote him out, although a 40 year public leech like Biden isn’t going to drain the swamp either. The incompetence that is Anthony Fauci (age 79 and counting) will now continue with the dementia president. Same inept inputs, same inept outputs. Throw in some perennial leeches from the Obama era and we have ourselves a repeat of the 2009-2016 performance that got Trump elected in the first place. Doing the same thing over and over, expecting different results is insane.
As for item #10… teaching your children to never stand up for themselves is a horrible lesson for any parent to give. Regardless of which inept loser you want in the Oval Office, a third world election fraud is not going to solve anything. Willfully sticking your head in the sand to obvious fraud won’t legitimize either candidate. Yes, you are willfully ignoring blatant ballot stuffing and ballot harvesting — even if you hate Trump, the ends do not justify the means
I like your idea of shorting HYG or JNK as a long equity hedge. Do you have general thoughts as to a rough rule of thumb as far as put strategy? For example: Buy at the money puts expiring one year out and roll them a few months before expiration? (obviously to be adjusted when there is a market crash) Looking for something that doesn’t require too much trading to maintain.
I was thinking of rolling options twice a year. Buy one of the put options six-seven months out, then swap options when it has one month remaining. I am open to correction on this idea as I don’t use options much now, but I used to use them at a hedge fund, and also ran an options book to hedge EIAs.