Projection

So, as we face the likelihood of a Biden Presidency, the saving grace for me is that the Republicans maintained control of the Senate and picked up seats in the House.  That's good news, because it means on some level, the identity politics and socialist aspirations of the group which has coopted the message of the Democratic party has not gained as much traction as I feared.  There were definitely a lot of people who simply voted to get Trump out, but also recognize the glaring weaknesses of the extreme left agenda.

I bring that up, because too much of what you see in the media represents the worst of what the Democrats have to offer.  It is accusations of racism all around, framing all issues in the context of identity politics, and generally misleading their audience on what matters and why.

Let's take a few examples.

We had the Black Lives Matter movement and the subsequent systemic racism/defund the police outcry.  If you listened to CNN, or read the NYT or Washington Post, you would think that all minorities had subscribed to the views espoused under those banners.  And then the election comes, and Trump does better with minorities than any Republican since 1960.  How to reconcile?

Maybe, just maybe, it turns out that the folks who bear the burden of these trends are the minorities who live in the communities where policing and the presence of law enforcement is most important.  Maybe, just maybe, legal immigrants in Florida and Texas agree that people should enter this country legally.  Maybe, just maybe, demographics is not destiny, and the best ideas still win.  Maybe, just maybe, what Trump was talking about is not just racism, racism, racism.  Maybe, just maybe, the folks who come from socialist countries know just how shitty that reality really is, and the messaging of AOC, Warren and Harris really only appeals to woke white people who have no idea what these "wonderful", egalitarian ideas evolve into.

After the election, I saw a number of articles in "serious" newspapers that simply doubled down on the racism explanation.  Disregard all of the above and continue to let dumb ideas guide you, because the Republicans are going to get even more seats in 2022,  And, my guess, they will get the White House back in 2024.

What the lunatic left is really doing is projecting their own worst tendencies onto the political opposition.  Guess what, looks like Trump lost, and no one rioted.  We know who the retailers in NY and LA and DC were actually afraid of.  The left accuses people of intolerance because they themselves are intolerant.  I don't pretend to speak for everyone who shares my political views, but I am comfortable in accepting that other views exist.  What we have learned is that the people who don't agree with me don't really have that ability.  They have to explain and rationalize the opposition in the most deviant and evil ways possible.  It failed this time, and it will continue to fail in the future.

Symmetry

I recall coming to this blog about 4 years ago to express my apprehensions about what was coming next.  At the time, it mostly manifest as concern that Hillary Clinton would become the next President.  And, that, even though I had no intention of voting for Donald Trump.

This time around, the same angst exists about a probable Biden victory, with the key difference being that I voted to re-elect the President.

I live in New York.  It is as blue as blue can get.  And amongst a largely educated set that I can interact with, the best explanation I get for supporting the Biden/Harris ticket is that it is not Trump.  To me, it is a position that is foolish and shows an inability to distinguish what matters from what doesn't.

What matters is policy that helps the economy to grow, particularly as so many remain unemployed.  We should be heralding 33.3% GDP growth in the third quarter (the largest such increase in our nation's history -- and a number that puts to shame any tepid recovery under Obama/Biden during the Great Recession).  But, we do not.  What do we think happens if you introduce higher taxes, greater regulation and put everyone back into lockdown in this environment?

What doesn't matter is Trump's trolling and wannabe stand-up comedian schtick.  I don't think he's racist (at least, no worse than any of his predecessors), and I do think that he has done a lot more in the form of criminal justice reform and empowerment of black communities than any President in recent memory.  Meanwhile, the party which likes to feign tolerance, and espouses that race and gender don't matter, selected a Vice President nominee entirely because of her race and gender (note that she did not hit 1% during the Democratic primaries for a reason, and bowed out before her party even voted in her home state of California -- although she did stick around long enough to call Joe Biden a racist).  It is the same party where its Presidential candidate and celebrity enablers tell black people who they can vote for and still be considered black.  That, by the way, is what racism looks like and is the underlying mentality -- that people of color have no agency and should just listen to us -- which leads to a failed welfare state.

As for COVID, I come from this as someone with two parents who fall within the demographic that is most vulnerable.  There is nothing that I wouldn't do to keep them safe.  But, when the mentality of the Democrats is that we should just listen to Dr. Fauci and that's it, it represents the worst form of single variable analysis you can fathom.  He is an infectious disease expert, but he also focuses on one thing to the exclusion of anything else and is not elected to run he country.  And in a country of 300+ million, you need to recognize the multiple moving parts and not act like everything stops in its tracks with a disease that becomes less and less fatal with every positive case.

But, moving beyond any single issue, my real fear is that the election of the Democrats represents the true empowerment of intolerance.  Whatever aspersions may be cast, it is the party of Biden which cancels those who disagree with them, calls everyone a racist or deplorable, riots in the streets, looks for injustices where they may not exist, and takes every opportunity to politicize.  They literally change the meaning of words.

When Ruth Bader Ginsburg passed away, the idea that Trump would nominate a new justice was decried as unconstitutional.  Quite literally, Joe Biden uttered those words.  A representative from his campaign said exactly the same thing while being interviewed on CNN by Jake Tapper.  For the record, it is not.  If there is a vacancy, the President can nominate a replacement.  And, if you have the votes in the Senate (the big difference from when Obama nominated Merrick Garland), you can get that person confirmed and scream from the hilltops that you just did something extremely constitutional.  By contrast, the Democrats deemed it court packing because Trump filled vacancies pursuant to the rules in place.  Come again?  Kamala Harris called it court packing during the VP debate because Donald Trump has not put enough people of color on the bench.  First off, whether true, that's still not court packing.  Second, what she is really doing is race hustling.  Do the Democrats like justices simply because of their race, as if that should be the sole qualification?  Why don't we ask Kamala how she feels about Clarence Thomas?  Meanwhile, it seems entirely likely that a President Biden would look to pack the court by expanding its numbers -- in effect, turning the judiciary, which is only supposed to interpret the laws, into another legislature.  So much for respect of the institutions.

People are prone to hyperbole at times like these, but I don't think my fears are unwarranted.  The Democrats are becoming the party of AOC, Elizabeth Warren and Kamala Harris.  Their ideas run counter to the essence of our country -- we are about equality of opportunity, they are about equality of outcome.  The latter is what failed states throughout history are made of,

So, there you have it.  I guess I don't think it matters whether I like President Trump on a personal level -- in fact, as someone who comes from the real estate world, I used to root against him in that arena.  But, as President, as far as policy, he has largely gotten it right.  And that's why I voted for him.  And that's why I think the very crude logic of Biden supporters is going to lead us down a dark path.

Paris Agreement

Far be it for me to act like any kind of expert on climate change, but I do get amusement out of the outrage at Trump’s “incomprehensible” decision to withdraw from the Paris Agreement – mostly because the accords themselves were largely symbolic and without any real teeth to enforce the proposed mandates.

The United States is already a country that has reduced its carbon footprint because it stands at the forefront of technological innovation – the problem really lies with China and India, countries that are looking to emulate the United States but with far larger populations, and who will no doubt allow their economic imperatives to trump any stipulations that the Paris Agreement may announce.  To that line of reason, I think Stratfor summed it up well: “Geopolitical forces, rather than international deals, have shaped the United States’ incorporation of cutting-edge technologies since long before Trump was elected, and they will continue to do so long after his tenure ends.”  Thus, I don’t think there is real risk to the United States’ withdrawal, and it does not mean that the conversation about climate change and how to address it will end.  Nevertheless, I don’t think the current environment is conducive to that kind of nuance and reason, so instead we will just get vitriol and hot air about what to make of the situation.

Recent Books

Hello again.  After taking a bit of break from this site, I got back to business this weekend and read a couple of books, my thoughts on which are memorialized below.

First off is Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel (2014).  Truly one of the best books that I have ever read.  Admittedly, my recent experience is focused on helping to get a new business launched – but even without that backdrop, I suspect that I would still be super impressed with this one.

For those who don’t know, Mr. Thiel is the founder of both PayPal and Palantir, and an early investor in Facebook, LinkedIn, and SpaceX.  Therefore, he is not only someone with proven success in starting and funding compelling new businesses, he has been able to do it serially.  He is a risk-taker, and therefore someone worth paying attention to.

His book is less a flight path for aspiring entrepreneurs, then important base concepts that one needs to have in mind when trying to launch the next breakthrough concept.  To wit, if you are simply copying others in an attempt to achieve marginal improvements or trivial differentiating factors, you haven’t actually learned anything from the innovators and are unlikely to survive and succeed.  The moral of the story has to be figuring out the secrets that are still out there and the important truths that most others would disagree with you about.  It is not simply to be contrarian in the traditional sense of going against the crowd, but instead having the courage to think for yourself.  It is related to fighting the reality that the mainstream generally views it as progress that unorthodox ideas now are commonly dismissed out of hand.  All of that may seem obvious, but there is a certain internal fortitude required to act on these first principles.  All of this argument goes against diversification and taking risks on the truly novel and different.  That is how the money is made – subscribing to what is better known as the “Power Law”.

In addition, within his discussion, Thiel offers some interesting insights on globalization, China and monopolies.  To his thinking, globalization is simply taking what works in one place and extending it everywhere else.  In other words, copying.  Therefore, the opposite of globalization is not nationalism, but technology – that which creates new modes of progress.  So, by that logic, the strong push for globalization as the answer probably leads to stagnation – and when you consider developing concerns, whether it’s the environment or some other issue, without the new thinking that comes from innovation, we face tremendous hurdles in the future.  As an offshoot of that thinking, he views China as a growth story that is entirely premised on globalization and copying without any innovation, again an unsustainable approach that should cause greater skepticism about that country’s ability to take over as the global hegemon.  Finally, the author sees the real tension in creating new technology as between competition and monopoly.  The real innovator is the creative monopoly, which generates something entirely new with a proprietary technology that makes the world a better place.

The other book from the weekend is The World According to Star Wars by Cass Sunstein (2016).  A light read on how the Star Wars arc is a compelling metaphor for life.  It provides a story of free will, the internal battle that everyone faces between light and dark, and informs on the ideals of mercy, forgiveness and redemption.  And, most poignantly for me, it is a story about fathers and sons.  Needless to say, as soon as I finished it, I decided to give my dad, my hero, a call.

More Tells

I am kind of shooting from the hip with this post, having not fully thought through potential causes, but...

In the last book that I read by Richard Koo, and really totally consistent with all the well-known Keynesians out there, there is a belief that a balance sheet recession prevents huge amounts of QE from causing inflation.  And, according to most "experts", Europe is in the midst of a balance sheet recession.  So, why then are inflation rates spiking up from Germany to Belgium to Spain?  Add to that, bond rates for weaker issuers (and I am throwing French OATs in there) are starting to flash out relative to Bunds.

I'm suspecting that what everyone thinks they know is about to be thrown on its head.

The Revolt Against the Masses

The subtitle is How Liberalism Has Undermined the Middle Class and the author is Fred Siegel (2013).

There are times when I read books to challenge my beliefs. This time is not one of them. Given the current political environment, and my sense that liberal outrage is an exercise in hypocrisy, I sought out a well-regarded argument that might confirm my understanding. Such is this book, as it takes us back in time to the roots of today’s liberal progressive agenda, and elucidates how it has always sought to impose the will of the elite on the perceived philistines and hoi polloi.

The progenitors are people like H.G. Wells, H.L. Mencken, Sinclair Lewis, Randolph Bourne, and Herbert Croly. Let’s start out by noting that all were believers in eugenics, which wasn’t deemed a bad thing until it became integral to Nazism. Moreover, all were big believers in the disinterested technocrat guiding the morally unsophisticated and unintelligent masses. They also all admired the Bolsheviks and frowned upon the economic motive. To wit: “We were all sworn foes of capitalism, not because we knew it would not work, but because we judged it, even in success, to be lethal to the human spirit.” This strand of ideology was very much at the heart of the New Deal and influenced its creation, as it drew on the same circle of professionals and professors who thought so much of Moscow. As such, it was a manifestation of the perceived solution to class conflict, more than just an answer to the Great Depression – not surprisingly, it was the genesis of so many social welfare programs that still exist today.

As a general observation, liberalism was an expression of “European Socialist parties rewritten in the language of rights”. Whether the New Deal programs earlier on, or the legal changes that came out of the ‘60s, it was an attempt to have the central power administer how humans should interact. Don’t get me wrong, as I have no objection to civil rights and personal liberties, but when all too often such decisions come out of the Supreme Court rather than majoritarian-ism, there is a disconnect between what the Democratic process is supposed to be and how morals and ideals are actually being implemented.

So, if I were to take anything away from this book, it is that good intentions matter more than outcomes in looking at the progression of this movement. Proving the point that not every problem can have a solution.

As an interesting tangent, the response to the 1980 presidential election might be useful. Over the course of that campaign, Democrats sought to turn the Republicans into populists, as Reagan was the outsider candidate trying to bring morning back to America after the turbulent 1970s of stagflation and high unemployment. While claiming the moral high ground, unfortunately for liberals their policy regime had left a country that was teetering – and in winning, Reagan engendered unexpected support from white working class Democrats (sound familiar?). The response from the losing side was vitriol (sigh) and nothing that resembled a re-think on ideas. The social programs were failures, as poverty continued to rise, but were now re-imagined as rights and racial justice (did they march the day after the inauguration also?). I would remind everyone that this book was written years before the Trump phenomena. And maybe what we are seeing yet again from the resistance – actually what I believe is going on in earnest – is the easy pivot that liberals make between acceptance and rejection depending upon who is in power.

Counter Factuals

I am reading another book right now by economist Richard Koo, innovator of the balance sheet recession concept.  If you remember what his idea entails, it's that when you have a big bust in asset prices when folks are highly levered, causing technical insolvency as values tumble, the introduction of monetary stimulus is of limited usefulness.  Ultimately, you need fiscal policy from the government to help mend the economy.  He notes that the big examples of a balance sheet recession include the Great Depression, Japan's bust in the late 1980's, and most of the large western economies post-2008.  What Koo emphasizes is that fiscal stimulus, in those cases, was the ultimate antidote.  But, look a little deeper, and there is probably cause for concern even beyond the misallocations that are allowed to linger.  In the case of Japan for the past 25 years, and the U.S. since 2008, the fiscal stimulus implemented prevented a Great Depression type event, but still did no better than only tepid growth.  Now, looking at the Great Depression, Koo would argue that there were initially mistakes under Hoover that exacerbated the initial bust, and later under FDR when he tried to cut budget deficits and triggered the double-dip in 1937.  So, what was it, by Koo's account (and others, like Paul Krugman who calls for a space invasion), that did the trick?  Massive, massive stimulus -- and the only thing that ever gets you there is war.

More on the Sideshow

My instinct is not to focus on politics too much in this space, but obviously it has played a large role lately in how to think about investing. With that in mind, I think Bill Fleckenstein did a good job of capturing my own personal view on politics in his recent Real Vision interview:

“The people that are the so-called conservatives think the economic engine is the most important thing, and then you can do good works with what comes out of it. The liberals tend to say, no, we want to do good works and the hell with the economic engine. Well, if you break the engine, you can’t do much.”

I think that view is spot-on, and explains why I believe that the women’s march and other efforts to focus energies on idealized notions of the nation state is to miss the point. If everyone is better off economically, the chances are slimmer and slimmer that the worst predilections and insecurities of man will win out. I’m not claiming absolute certainty on this point, but I am pretty sure that the worst moments in human history did not occur when people were doing well – in other words, that’s not when we are most vulnerable as a civilization. And that’s why economic populism was the strategy to win this time around.

Having said that, even if Trump is more economically literate that those who came before him, he can still masterfully screw it up by choosing to implement policies that are just so against the grain morally, as to undermine his ability and support to do the other more important things that need to be done. The immigration ban is a case in point. Yes, he said he would do something to this effect, but its implementation was crude, potentially unconstitutional, and anathema even to those who might otherwise be apt to give him the benefit of the doubt. I hope he finds a graceful way to backtrack on it, even as I find the liberal outrage to reek of hypocrisy.

Doubling Down

In what has been termed a “tumultuous” opening to his Presidency by the media, I thought I could offer some of my own thoughts on the era of Trump so far. He came to Washington as an outsider who planned to set fire to the place. And in making an aggressive inauguration address, and the other opening acts of defiance, he has stuck to that promise. What I find particularly interesting is that the “opposition” seemingly has learned nothing from its defeat in November. To quote someone I know, they are doubling down on a bad strategy – whereas economic populism is what got Trump to power, the folks who could be the resistance are instead focused on identity politics. And, really, they should know better already.

During the campaign, where Trump went wholeheartedly after white working class voters by focusing on their economic pain, the Clinton side decided that the right response was to label Trump as a racist and misogynist, and better yet to categorize his supporters as deplorables. He still won. In the aftermath, between attempts at trying to overturn and invalidate his win, the strategy still seems to be a focus on some unsubstantiated claims about Russia hacking the election (again, a carryover) and continuing to dwell on identity politics (witness this past weekend’s march). None of that will change the score in terms of who supports him and who doesn’t.

The basic point is that it didn’t work during the election and it won’t work now. Unless the resistance can speak to the specific issues that helped Trump to win, they will make no progress over the next four years in arguing the case to vote him out.

Look, we can all agree that he is a jerk. But he is a smart jerk who understands what the pressure points are for a large swath of voters. Sadly, the folks who marched over the weekend are missing exactly that.

End of Year Note

I am optimistic about 2017. Not because of who got elected president, or because I think that the economy is about to heat up. Rather, it is about business prospects that I have been mining for several years which I think will finally evolve and mature to my satisfaction. Having lacked such optimism for a while, it’s a nice change.

Apropos of that sentiment, the notion that interest rates should rise will facilitate the ideas that I want to take action on. And, courtesy of 720 Global, I think the following summary explains why such a reality is likely:

“While the increasing interest rate risk and price sensitivity coupled with a decreasing margin of safety (lower coupon payments) of outstanding debt is alarming, the story is incomplete. To fully appreciate the magnitude of this issue, one must overlay those risks with the amount of debt outstanding. Since 1982, the duration (price risk) of nominal U.S. Treasury securities has risen 70% while the average coupon, or margin of safety, has dropped 85%. Meanwhile, the total amount of U.S. public federal debt has exploded higher by 1,600% and total U.S. credit market debt, as last reported by the Federal Reserve in 2015, has increased over 1,000% standing at $63.4 trillion. When contrasted with nominal GDP ($18.6 trillion), one begins to gain a sense for how radically out of balance the accumulation of debt has been relative to the size of the economy required to support and service that debt. In other words, were it not for the steady long-term decline in interest rates, this arrangement likely would have collapsed under its own weight long ago.”

To all, I wish a happy and healthy new year. I look forward to bigger and better things.

Bond Update

The move in interest rates since the election (and really since the low over the summer) has been impressive.  There are a whole host of unintended consequences if rates move higher in a world where the stock market is overvalued, economic growth is tepid, debt is in large supply already, and the spigots of fiscal policy seemed poised to be turned on under Trump.

So, with that as context, I decided to look at the charts to determine whether it is safe to say that the 35-year bull market is over.  Short answer, until the 10-year bond (as proxy for all bonds) cracks north of 3%, then the downtrend in rates remains intact.  With that said, the double bottom (hit almost exactly 4 years apart in 2012 and 2016) speaks to a potential change of course.  But, we must wait for confirmation, especially as there are plenty of smart people that I follow who are making the case for even lower rates when the next recession hits.

Swing States

I look at this map from 2015, detailing economic confidence by state, and I think to myself...did Hillary ever have a shot at winning?

More Reaction

Starting with the markets. After Trump won (which wasn’t supposed to happen), the stock market made an impressive move higher (which also wasn’t supposed to happen). The interesting cross-current, though, was how much interest rates moved up as well (in another clear example of how the Fed is not bigger than the market). Part of the “explanation” is that Trump’s anti-regulation, lower tax policy stance, within the backdrop of a Republican-controlled congress, should be good for growth. But, to my thinking, stocks were already very over-valued, and the debt problem did not suddenly go away. If these immediate reactions remain the trend, and don’t reverse, higher rates will have an impact at some point. That I believe.

As for the whining post-election, I chalk it up to my favorite internet meme: “When everybody gets a trophy, nobody knows how to lose.” To be clear (for the millionth time), I am not a fan of Trump, and as much as I do not like Hillary, I still couldn’t hold my nose and vote for the guy. But, any notion that the popular vote is more indicative or important than the Electoral College outcome is just ridiculous. Everybody knew the rules going in. As a result, the candidates campaigned so as to win the Electoral College, not the popular vote. Moreover, I am not even sure that the popular vote outcome is truly informative anyway. Sure, at a minimum, it tells us that the country is highly divided, but we also know that the existence of the electoral college structure in the first place means that plenty of people think that their vote holds very little value (I live in New York City and there was no difference in the election results whether I voted Clinton, Trump or not at all). Just consider that only 53% of eligible voters participated – the non-voters actually won the election by that metric. Therefore, it’s hard to argue that the popular vote tells us anything of import. But, everybody likes to have something to complain about. And in the land of safe spaces, winning the popular vote is something to hang on to.

The Day After

Let’s start with the obvious. I took the recent polls at face value and believed that Hillary Clinton would win. As much as I understood the parallels to Brexit, and did not just dismiss out-of-hand that the media was in collusion with the Clintons, I fell for the hype. But, I was wrong. At least I can say that I am not shocked by the result, since I was not the typical consumer who merely scopes the headlines, but does not then read the actual article. So, this outcome was realistic to anyone who understood that you vote your pain. And for many Americans, that meant bucking a system that had left them behind, earning barely enough to subsist. You didn’t have to be a racist or sexist or moron to vote for Trump. The common denominator was frustration and despair.

With that said, despite the histrionics of the election season, I don’t think that Trump will launch a nuclear bomb just because someone says something unflattering. I also don’t think that he is really the man of the people who tapped into the zeitgeist of Midwest blue collar voters in order to win. But he does have a chance to surprise us. I’m hoping that he does.

Final Pre-Election Thoughts

My instinct for a long time has been that Hillary would win, and so now we are finally at the finish line where this country will be hoisted by its own petard.  And, for that reason, even as I don't support Donald Trump, I am saddened by what seems like an inevitability now.  When she wins the election, it will confirm absolutely that there is a class of people in this country who are able to operate and live above the law.  That is not up for debate.

There are too many who would say that nothing came out of the of private server issue, but I would beg to differ.  People who traffic in confidential information get prosecuted and fined, even when that act was performed without mal-intent.  But, in this instance, the next President, who clearly did exactly that, gets away with a job promotion.

And it doesn't even end there.  The Wikileaks emails confirmed what we also already knew -- that her non-profit served her profit motive in many ways -- she and the other Clinton have made $150 million, simply by being politicians.

And the list goes further as well.  She was a first lady who failed at health care.  She was a senator who did not sponsor a single bill of substance (forgive me if I don't think that she deserves much credit for the legislation that supported NYC after 9/11 -- as I challenge you to tell me that any senator from New York would not have been able to do that, at that moment in time).  And, as Secretary of State, her resume should read:

-Failed reset with Russia
-Failed pivot to Asia
-Benghazi
-Libya (failed state)
-Syria (failed state)

Stellar, all.

So, to parrot a quote that I posted on this site earlier this year, she seems to have the magical ability to fail up in her political career.  She is a useful servant of the elites and oligarchs -- in fact, she is an oligarch herself.  And with the money that she has behind her, she is able to convince enough of the uniformed masses/useful idiots that the status quo is better than the unknown.  Better to fail conventionally then to succeed unconventionally.

In any event, tomorrow is another day, and life will go on after that.  The fate of humanity does not hang in the balance, but it's still disappointing that so many continue to be asleep.

Checking in on an old friend

Courtesy of The Real Deal:

“Jonathan Gray thinks people are getting too worked up about interest rates.

“There’s a (false) sense that owning real estate is the same as owning a bond,” Blackstone Group’s real estate head said in an interview on CNBC Tuesday. “Real estate, like stocks, can see earnings growth. And that’s what we’re seeing today because of favorable fundamentals.”

As the Federal Reserve readies itself to raise short-term rates later this year, many in the real estate industry worry that higher short-term rates could spill over into higher long-term rates, which could increase the cost of financing and put downward pressure on property prices.

But Gray argued that rising rates don’t have to be bad for the real estate market since they tend to coincide with improving fundamentals – such as employment and income. He pointed out that the real estate market “did OK” in previous eras of rising rates.

“We don’t expect to see the growth in value in the next couple years that we’ve seen in the last four or five years,” he admitted. “But we don’t expect to see some sort of sharp decline in the near term.””

It’s worth paying attention to the guys at Blackstone, as they are the biggest of the big in institutional real estate. And his logic about real estate having an ability to increase rents does distinguish it from bonds. BUT…we are dealing in unchartered territory when it comes to central bank policy, and part of what has driven recent pricing in real estate is the interest rate environment that we live in. As such, many folks have increased their allocation to the space because of its financialization and as an expression of an alternative to traditional fixed income. So, Gray may be right, but there is a lot more going on that muddies the waters in terms of what comes next.

Market "Call"

October is a month for stock crashes and downdrafts.  The kindling is now in place for exactly that, and so I believe that we are about to see some serious damage in financial markets this month.  That and a quarter...

Does this car come with airbags?

One of my favorite lines, and one that has become something of a mantra for me over the past few years, comes from investor Kyle Bass: "I don't get paid to be an optimist or a pessimist, I get paid to be a realist."

So, on the heels of a presidential debate that I did not watch, I offer up the following.  Realistically, my belief has been that Hillary Clinton will win this November.  Realistically, I understand that Donald Trump's candidacy is a symptom of the failure of mainstream/establishment politics and the conventional thinking attached to it.  So, in unemotionally assessing the lay of the land, whether it is this cycle or the next, I do believe that the status quo can is finally going to hit the wall.

Rational Thinking

When it comes to understanding what's going on in the world -- and, by that, I mean the real facts and actual implications, rather than what the mainstream media normally feeds everyone -- there are a handful of subscription sites that I tune in to.  For geopolitical thinking and insight, I read Stratfor and Geopolitical Futures (which was formed in the past year by the original founder of Stratfor).  For finance, economics and the like, I still tune in to Bill Fleckenstein, but I also really enjoy Real Vision TV.  It is a website that produces long form interviews with some of the smartest, and sometimes obscure, names in that universe.  It provides a forum, versus financial television, where ideas can be fleshed and not everything is driven by catchy soundbites.

With that prelude out of the way, a very recent interview on Real Vision was conducted by Grant Williams (a co-founder of the site) with David Dredge of Fortress Investment Group.  Really interesting stuff, with a few specific points that resonated and brought home the pickle that the world is in.

First off, in the context of the great boogie man, deflation, it was pointed out that over the past 40 years, there have been endless tweaks to the calculation of core inflation.  And the subjects both observed that none of those alterations have ever led to a higher print.  So, if the answer (as preached by central bankers and mainstream economists) to our woes really is inflation, why does it seem that over and over again, the attempt is made to refine its definition so as to bring it down.

Secondly, in a discussion about Japan, but really an insight that applies everywhere, Mr. Dredge noted that there is growing talk of helicopter money as the next step in dealing with the country's financial issues.  And, really, what that evolution speaks to is an admission that monetary policy has done all that it can and it is time to turn to fiscal policy.  And, out of that, the skeptical thinker should have two questions for the Japanese central banker or New York Times "economist" who is a proponent:

(1) Japan has run large fiscal deficits year after year after year since it's economy turned in the late 1980s.  Are we really saying that just a little more of that is really going to make a difference?

(2) Helicopter money implies more debt on the BOJ balance sheet, more government debt, and higher fiscal deficits.  If putting more assets on the BOJ balance sheet and running deficits really was the answer, especially in the case of Japan, shouldn't we have whipped this problem a long time ago?

Anyway, that's the type of stuff that allows you to see the world as it is, and not how others would tell you to see it out of convenience.  Highly recommended.

Election Season

Something that drives certain members of my family crazy is that I no longer vote. I don’t feel represented by any of the candidates who get run out every couple of years, and I also live in a state where my particular vote carries very little weight.

In the current election cycle, though, something else that irks those same relatives is that I am not utterly appalled every time that the name “Trump” is brought up. Don’t misconstrue what I’m saying – he most definitely is not the candidate who will bring me out of my voting doldrums. But, at the same time, I appreciate that he signifies something more than politics as usual, a proverbial shift away from the establishment.

All of this brings me to a recent conversation that I had with a friend on the topic of this election. And how my view is that Trump is not the right candidate, but he symbolizes a change in this country that likely will be realized in future elections.

Apropos of that anecdote, I was reading an article by George Friedman on the website Geopolitical Futures and saw the following:

“Whatever happens to Trump, he has in my mind laid out – in one speech and leaving much out – a foreign policy that is likely to be implemented by some future president, if not himself. The ideas of free trade as an absolute principle, of oversight by international organizations and of open-ended military alliances, are now over 60 years old. It is a set of doctrines created when the world was a very different place. It is unlikely to be sustainable as a doctrine for much longer. This is not isolationism. It is a more flexible involvement with the world.”

That sounds about right.