The R-Word

In an episode of “The West Wing” (Season 5), an aide to Chief-of-Staff Josh Lyman starts to reassure his boss: “If the economy is headed into recession …” “No, no, no,” Lyman interjects. “We don’t ever use that word around the White House.” They settle on a euphemism instead: bagel. “So, if it is a bagel … the Fed thinks it’s gonna be a mild bagel,” says the aide.

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Gawking and Hawking

It’s human nature. When there’s an accident on the interstate, traffic slows to a crawl as passersby crane their necks, gawking to see who-knows-what. When the same occurs in the capital markets, pundits opine just as instinctively. Some think they can add insights to the narrative; others want to be on record for some future marketing blurb.

The principal contribution of the undersigned is neither. Our investment strategy—indelibly displayed in our client portfolios—has already been articulated in an irreversibly public way for a long period of time.

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Super Bowl Jinx

As we wrote in April 2022, last year’s Super Bowl was the publicity peak of the crypto bubble. Celebrity-studded ads made the case for the rank and file to join the billionaire “crypto bros” surfing the wave of the financial future. The ignominious crypto exchange FTX, now bankrupt and synonymous with fraud, was a notable newcomer.

Headlining the blockbuster event is often a sign of waning popularity. For instance, most of the musical acts in 2022 were already in their 50s, well past their halcyon days of pop-world stardom. Crypto companies had already been weak for months and imploded later in 2022. The general malaise that settled over the equity markets for much of last year has been widely portrayed as taming animal spirits. With the return of nearly forgotten real interest rates in 2022, historic overvaluations have moderated, and the headline excesses manifest in early 2022 have failed to re-emerge. This has some hoping that the worst is over, that policymakers have successfully stabilized the post-pandemic economy and prepared it for steady growth, that there is virtually no cost to be exacted for the tsunami of monetary and fiscal largess dating back to 2008.

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Goldilocks…Stalked by a Grizzly?

By outward appearances, the state of the U.S. economy during the first 10 months of 2022 has been neither too hot nor too cold, except for the double-edged sword of the anything-but-tepid employment data. The bellwether measure of job growth has been robust, with the economy adding an average of 420,000 jobs per month, twice the average rate of 194,000 from 2011 to 2019.

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Speak Truth to Powell

In August 2005, the Jackson Hole Economic Policy Symposium was to be the last for Federal Reserve Chairman Alan Greenspan, set to retire in January 2006. This was the occasion to pay homage to the luminary whose 15-year career spanned the ideological divide between Paul Volcker and Ben Bernanke.

Raghuram G. Rajan, the precocious chief economist of the International Monetary Fund, was asked to present a paper on how the financial sector had evolved under Greenspan’s tutelage. Rajan was aware of the solemnity of the occasion and knew that others would be breathless in their praise of securitization, deregulation, the emergent concept known as the “Greenspan put,” and other tools of financial creativity and exposition that were spawned during the maestro’s reign.

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It’s Time to Rediscover the Importance of Interest

Edward Chancellor, whose writings have graced this site on several occasions, is once again featured. From his Breakingviews column: “It’s Time to Rediscover the Importance of Interest.” The essay is a prelude to the August 16, 2022 release of his latest book, The Price of Time: The Real Story of Interest, which I highly recommend. The Kindle version is available on Amazon and can be preordered.

Inflation is back, and along with it a widespread obsession about the future direction of interest rates. This is hardly surprising. In the past, a dose of tight money has brought prices under control. However, interest’s role in ensuring price stability is just one of its many functions. Our neglect of those other functions explains why the financial markets are in such a jumpy state today.

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On Good Authority

For the many pundits masquerading as authorities, there are precious few whom time confirms as worthy of commendation. Edward Chancellor is one of them.

As the bubble relentlessly defied history, logic, and valuation’s gravitational pull through the late 1990s—the NASDAQ composite doubling from October 1998 to October 1999 and then, remarkably, doubling again from October 1999 to March 2020—the undersigned was in search of kindred spirits. A resolute contrarian, I remember voraciously consuming two books that leaned in solitary with me, as a David against the Goliath of the prevailing speculative winds. Those were Devil Take the Hindmost: A History of Financial Speculation (published on June 1, 1999) by Edward Chancellor and Irrational Exuberance (published on March 15, 2000) by Robert Shiller. The passage-of-time crucible revealed both authoritative books to be eerily prescient.

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The Perfect Storm 2.0

After a tumultuous start to 2022—the S&P 500 is down 13.3% and the NASDAQ has plummeted 21.1% as of April 30, to register the worst four opening months since 1939—the question on everyone’s mind and often lips is whether the meltdown is simply a correction in the grand secular bull market or something more ominous. My 2011 book, A Decade of Delusions, Chapter 9 (covering 2005 and 2006), describes the prelude of the Financial Crisis as a particularly violent storm arising from the confluence of a number of negative and unpredictable factors. Could the current volatility be a Perfect Storm 2.0 on the horizon?

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