“Education is what survives when what has been learned has been forgotten”
Language is great. When used properly, you can sometimes come up with some easy to read, compressed wisdom. And making reading easy and short is not an unwanted or unnecessary outcome. It is paramount in our present “low intellectual effort” social environment. In that sense, I get lots of complaints about my posts. Not that they induce the remotest doubt that I should adapt to the easy-reading, no-substance, dominant posts of today. Private banking weekly “résumés” are guaranteed to make you laugh -or sob, in a heavyhearted remembering of what the “homo sapiens” once was like. No new ideas to share, and a compendium of financial press statements and reasoning of the lowest level. Yet it is exactly what their clients and readers want.
People talk monetary policy like it was soccer. As a Spanish politician, now defunct, once said: if everybody only spoke of what he knew about, there would be a planetary silence that we could all take advantage of in order to read and learn. Twain also cleverly phrased the problem. It ain’t what you don’t know, but what you think you know and you don’t, that will get you into trouble. Most investors think they know what they are doing because Fed chairs have eliminated downside risks for what seems an eternity. They don’t. They are in serious trouble today.
Brainless, memory-worn investors, humbled now to a degree, are getting what their educational level has entitled them to. Only education might have prevented investment patterns that enabled the last financial boom (and the previous ones). Greed always follows fear in the investment cycle, and only strict educational levels can help us humans remain disciplined at all times. Particularly if CB’s are playing cheerleaders and conducting the herd to economic suicide (with the inestimable support of the sell side segment of the securities industry). Investors followed the pied piper of Hamelin in droves, because once they had forgotten 2008, those memories gone, there was nothing else left to prevent them from doing so. And it sure helped that Ben played his Hamelin pied piper role magnificently. I hope history will be able to assign responsibilities for all the grief and misgivings his conduct has produced. More than a few Central Bankers ought to be jailed by the time this financial clean up is over. Highly unlikely though -save for isolated cases like Iceland.
Following up on compressed, easy to read wisdom, but somewhat bloodier, the adage about bulls and bears making money -while pigs get slaughtered-, is also a universal truth. A truth that had been deep frozen by the “easy money” and the “put for all” idiotic Fed policy. Greed has been relentlessly rewarded by CB’s -generating a pervasive moral hazard environment for the masses. We ran out of examples of risk materializing in heavy losses for imprudent investors. Investors were bailed out time and again at no cost. CB’s sponsored the party and ensured an “all you can drink” punch bowl use. I have felt like a priest recommending sexual constraint in a permanent non-stop sexual orgy, assuaged with lots of alcohol and drugs in order to make it last.
But, if something could not go on forever, it was certain to stop at some point. Yellen and Fisher finally understood the printing orgy had gone too far, for too long. Bubble pricing in financial assets, excessive risk undertaking by investors, and notorious malinvestment were all too evident. All their fed-talk about the strength of the US economy is bullsh.. to cover their backs. And they know it. Anyway, even if they try to hide the reasons for tightening us out of the easy money mess, we have to credit them for being brave enough to try to put an end to the party. Regrettably, their decision will induce gargantuan consequences that were baked in the cake by then. If global money magnitudes remain more or less stable, the traditional investment rules and adages will be applicable again. And even if that is undoubtedly good news for the long run, we will likely be unable to get to that point -while remaining financially alive. Continue reading