‘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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Who Picks Up the Tab for the Free Lunch?

The exponential growth of the global COVID-19 pandemic steamrolled the path for a new era of unprecedented state intervention in the world’s economies and its financial markets. From its bird’s-eye perspective, the International Monetary Fund recently predicted that rich countries will borrow 17% of their combined GDP to fund a total of $4.2 trillion in spending and tax cuts, designed to keep the world’s economies afloat. The IMF, however, is woefully behind the frenetically changing news-cycle curve.

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Beware the Ebb Tide

With equity markets soaring, both investors and speculators must be expecting a V-shaped recovery, a resumption of earnings growth, and commensurate ongoing appreciation in stock prices. The path of least resistance is upward as the demand from speculating surfers is exceeding the supply from investors who, in the midst of perplexing mixed signals, are standing flat-footed on the shore as the wave of liquidity whipped up by the Fed obscures the ebbing of the economic tide.

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Down the Rabbit Hole

As I wrote to you on October 19, 2017, Edward Chancellor and I met soon after I read his prescient and literarily superb book, Devil Take the Hindmost: A History of Financial Speculation (2000). We have stayed in regular touch, including attending a Berkshire Hathaway annual meeting together. This is his fifth appearance as guest writer. Just yesterday he sent me the following fable from Breakingviews which, with his permission, I am posting as it captures the zeitgeist of the times like few others are able to do.

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Financial Stability at Risk: Déjà Vu 2007

History may not repeat itself, but some of its lessons are inescapable. One is that in the world of high and confident finance little is ever really new. The controlling fact is not the tendency to brilliant invention; the controlling fact is the shortness of the public memory, especially when it contends with a euphoric desire to forget. The rule is that financial operations do not lend themselves to innovation. What is currently so described and celebrated is, without exception, a small variation on an established design, one that owes its distinctive character to the aforementioned brevity of the financial memory. The world of finance hails the invention of the wheel over and over again, often a slightly more unstable version. All financial innovation involves, in one form or another, the creation of debt secured in greater or lesser adequacy by real assets.  

–John Kenneth Galbraith, 1993

All eyes are focused on the markets, which take the temperature of collective investor sentiment every second and, in a more obtuse sense, of the economy, where news—GDP, consumer income and consumption, investment spending, net exports and the like—drips over the course of a month or months like water out of a leaky faucet.

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