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On Fragility and Avalanches

As markets rise to fresh highs, the worries of the past months, much less previous years, seem to have happily dissipated. Gone are concerns about lost consumer income, falling productivity from reshoring production, or the growing horde of highly indebted companies sustaining themselves despite rising interest rates.

With the addition of augmented unemployment benefits and direct federal payments, worries about household debt have almost evaporated. Meanwhile, that indebtedness has grown throughout the crisis. Average wages have remained flat after a bump in April 2020 as legions of low-wage workers became unemployed. Household incomes, which include government transfer payments, remain high on the back of continuing federal support. In other words, the consumer is being propped up by Washington.

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A Common Thread

As the $1.9 trillion Biden stimulus package is emerging, its immediate impact and likely knock-on effects are being vigorously debated. Well-regarded thinkers are warning of a resurgence of long-dormant consumer-price inflation or, more problematically, stagflation. Others are inclined differently. They make the case for its polar opposite, deflation, and all that might augur. Some argue that financial stimulus will drive wealth and income disparity higher as a speculative mania in the asset markets has overwhelmed investment spending as the bedrock of economic growth. Another faction similarly concerned with wealth inequality sees those same payments as a remedy to disparity. And that’s just the tip of the iceberg of economic discourse.

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Beware the Crowd

Many decades ago, I happened across Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (the first of many editions was published in 1841). A quote from the foreword piqued my interest: “The poet/dramatist Johann von Schiller once said, ‘Anyone taken as an individual is tolerably sensible and reasonable—as a member of a crowd he at once becomes a blockhead.’” Mackay proceeds to analyze a number of historical episodes—the Mississippi Bubble, Alchemy, the Crusades—and debunk the underlying logic of each that had so fully captured the imaginations and behaviors of those who lived through them.

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A Surprising Disconnect: The Boom in Both Markets and Human Misery

The perplexing reality front and center in investors’ minds as we begin 2021 is how financial markets can be so unabashedly ebullient while the global economy is so terrible. How do we reconcile surging nominal asset prices and off-the-charts price-to-value measures with the presumed countervailing gravitational pull of economic despair, exacerbated by Covid-19, which now claims more lives daily at 4,000 than did the 9/11 terrorist attacks?

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‘Read My Lips’: ‘We’re Rounding the Turn’

In this age of soundbite television, a pithy phrase uttered in the heat of presidential oratory can change the tide of a race. Usually carefully crafted by a cadre of political marketing experts, these snippets of powerful prose can ring eternally in the annals of history if they resonate with the electorate.

As he accepted the nomination at the 1988 Republican National Convention, George H. W. Bush proclaimed, “Read my lips: no new taxes.” That pledge had been a consistent part of Bush’s 1988 election platform and the soundbite’s prominent inclusion in his speech cemented it in the public’s consciousness. It likely contributed significantly to Bush’s victory over Democrat Michael Dukakis.

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Will They Who Sow the Wind Reap the Whirlwind?

The rhetorical winds, gathering force for a long time, reached hurricane Category 5 when the novel coronavirus made landfall. With the ensuing pandemic uprooting the normality of social, economic, and political life, the knee-jerk public rhetoric and reaction were proportionately chaotic.

Our focus is on the economic uprooting while acknowledging its interdependence with the political and social, as one might visualize through the three sets in a Venn diagram.

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Inflation to the rescue

Having the greatest respect for the work of Edward Chancellor, we appreciate the opportunity to occasionally feature him on this blog. Recently, he has been contemplating the return of inflation. While immediate losses to income are a deflationary force, the dynamics that determine price are more complex long-term. His most contemporary views are discussed in this recent interview. His more thorough perspective is below. Such swans as this define entire eras of investment.


25 June 2020, By Edward Chancellor

The massive fiscal deficits and money-printing engendered by the coronavirus pandemic should see off the threat of deflation. Rather, the spectre of inflation now beckons. While its potential horrors should not be downplayed, the return of inflation is the best way to resolve the great economic imbalances and social discontents that beset our world.

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The Agony and Enlightenment of Thinking in Thoughtless Times

British philosopher Bertrand Russell commented on thinking and the slavish nature of humanity: “Most men would rather die than think. Many do.”

In 1946 Viktor Frankl’s Man’s Search for Meaning was first published in German. The book, written over the course of nine days in 1945, begins with Frankl’s autobiographical account of his experiences in a German concentration camp. Frankl, an Austrian psychiatrist, in the midst of unimaginable suffering and loss, thought deeply about the existential meaning in the insanity of it all. Through the constant trials and endless terror, he concludes that the greatest task for any person is to find meaning in his or her life. Frankl sees three possible sources for meaning: “in work (doing something significant), in love (caring for another person), and in courage during difficult times.”

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