Quote of the Day

From an interview with Stanley Druckenmiller:

This massive market rally is due in large part to the measures taken up by the Fed since the pandemic began, Druckenmiller said. He noted that, while the central bank did a “great job” in March by cutting rates and launching unprecedented stimulus programs to sustain the economy, the follow-up market rally “has been excessive.” He also said that for the first time in a while, he is worried about inflation shooting higher.
“The merging of the Fed and the Treasury, which is effectively what’s happening during Covid, sets a precedent that we’ve never seen since the Fed got its independence,” Druckenmiller said. “It’s obviously creating a massive, massive mania in financial assets.”

You don’t say.

19 thoughts on “Quote of the Day”

  1. An awful lot of people seem to have decided that inflation is and will be no threat…I see people buying & recommending long-term bonds and preferred shares (which generally have *no* maturity data) at yield that seem nice now, but are setting up for capital loss in even a modest inflation and interest-rate environment.

  2. Gold’s up 18% in the last six months, silver an astonishing 57%.

    Reminds me of the middle- to late-1970s.

  3. “silver an astonishing 57%.”
    That’s basically exactly what the Dow is up since its lowest point.
    I’m no expert in investing at all, but I don’t see what we’re supposed to do in a world where the government is just trying to boost the stock market, other than just ride it out?
    I also don’t know what lessons anyone under 30 has learned about savings–bank accounts have basically given out no interest during their entire lives.

  4. There is no doubt that the Fed’s foolish actions are indeed creating “a massive, massive mania in financial assets“. But we may be beginning to see a tectonic shift in certain critical attitudes.

    Joh Mauldin’s weekly column is a good guide to conventional thinking among the 0.01%. Interestingly, he has now started writing about the obvious — real inflation is much higher than government’s cooked figures; Fed action is boosting wealth inequality; this is creating social instability which threatens the interests of the wealthy.

    We all understand that politicians serve the interests of their big contributors. If enough of those big contributors are starting to realize that being wealthy is great but living in a Venezuelan economy would be undesirable, politicians will change direction.

    The cure for what ails the US economy is quite simple: stop messing with interest rates and money-printing; start rolling back excessive regulation, switch from disadvantageous unilateral free trade to bilateral fair trade, and simplify the tax system. Industries return from overseas; jobs come back; tax revenues go up; social stability improves; and the wealthy can go back to enjoying life.

  5. The question about inflation is not whether but when.

    In its First Law, Thermodynamics declares a limitation: we cannot create mass/energy, only change its form. I view that law as a corollary of a more fundamental absolute: only God can create, only God can speak anything into existence (even existence itself, for that matter, all puns accidental). The classic acronym TANSTAAFL (they ain’t no such thing as a free lunch) expresses these limits in economic terms. Even those unschooled in economics can grasp that acronym’s meaning (which is as profoundly foundational in human relations as thermo’s 1st law is in physics).

    Folks don’t like limits. Thomas Sowell captures the conflict in a quote I saw for the first time this past week: “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

    I’d modify Sowell’s last sentence: the first lesson of politics is to proclaim that the politician can deliver one from bondage to the first law of economics.

    Stimulus packages (eg, EIP, Economic impact payment) cannot avoid the constraints of creation. Inflation will result. The only question is how soon its effects will show up.

  6. “…silver an astonishing 57%” – this has seriously affected industrial products and end use products such as brazing rods and soldering rolls. Your home repair just got more expensive.

  7. Meh. Get back to me when someone figures out how economics and the economy really work, and I’ll worry.

    In the early 1800s, 90% of us worked in agriculture, trying to keep everyone fed. Today, that same job is performed by roughly 1% of the population and we’re feeding a significant fraction of the rest of the world with that workforce.

    So, the question is, how much of our current “economy” is really bullshit, when you look at the numbers? How much “float” is there, and just how much of each other’s laundry can we take in before the whole thing crashes down around us?

    I’m coming around to the idea that we are in entirely unexplored territory, here, and it is primarily because we’ve managed to get onto the on-ramp for a post-scarcity world. If we had the wit and will to transform our energy economy into something nuclear-based, such as thorium, small modular fission, or fusion (if that ever happens…), then what? Oil and fossil fuels in general have gotten us to the point where we can support an enormous parasitic load on the economy, and yet still function. When energy isn’t a scarcity factor, and you can use those cheap nukes to do things like desalinate and water the various deserts of the world, what then?

    Additionally, there’s the Elon Musk factor. At some point, the man is going to realize that Mars is a sideshow, and he’s going to start bringing back resources from elsewhere in the solar system. What do we call it when some entrepreneurial spirit parks an asteroid of mostly gold and platinum at one of the L-5 points, and we begin daily bombardments of precious metals?

    I honestly doubt that anybody has a freakin’ clue where all this is going. The economy and money itself have always just been games we play with ourselves, and the accounting thereof is mostly fictional, anyway. The real value has always been human capital, and that’s almost impossible to keep track of.

  8. After watching 2008 and realizing the fed would continue to debase the American dollar, to boost the stock market, I saw that Gold and Silver could not help but rise over time. So I have some cash for living and all the rest is Gold and Silver. Especially Silver, as coins in Canada, bought and sold for under a grand are free of Capital Gains tax. I have more Silver Maples than I can carry at this point. ;)

  9. In my lifetime, I’m pretty sure that someone like Musk is going to bring back enough gold and silver from elsewhere in the solar system that people like Pennie here are going to be utterly ruined by the resultant reset of the world’s financial systems.

    And, I’ll have to be forgiven for the loud hysterical laughter that rings forth from my padded room.

  10. LOL. Musk is a deity to so many. I do not ascribe to his religion myself. I am going back to my weights though.

    Its not mine. I have everything a man could need, and that pile of metal is for my children.

  11. The Fed can’t let interest rates rise. As soon as they do, rates on treasuries will skyrocket and everything they can squeeze out of taxpayers goes directly to pay interest. Of course, the Fed is printing money to “buy” treasuries to keep rates low and now is apparently printing money to boost the commercial stock and bond market. What could go wrong?

  12. Kirk: “In the early 1800s, 90% of us worked in agriculture, trying to keep everyone fed. Today, that same job is performed by roughly 1% of the population …”

    That is a good example of your point about the economy being a game we play with ourselves. It is certainly true that the share of the workforce directly in the fields has declined to a very small (although absolutely critical) percentage. However, how do we account for all the people who are indirectly working on the food supply?

    The farmer on his megapowered John Deere tractor spreading fertilizer & insecticide is extremely productive because other guys are out there mining the iron ore, making the steel, building tractors, while other guys are drilling oil wells and refining & distributing diesel to fuel the tractor, and yet more guys are building & running the factories which make the fertilizers & insecticides. If we add in all the people whose work is essential to allow the 1% to farm the land and produce the food, it would amount to a much more noticeable percentage.

    It is like unemployment statistics, inflation statistics, etc. We can create all sorts of measures, but they don’t necessarily mean what people think they mean. We have all kinds of gauges on the control panel, but we are still flying blind. And consequently we are only guessing when we think we know what happens when we touch any of the controls.

  13. In all the reading I’ve done on the subject of economics, the one thing that has struck me is that there isn’t anyone who really has managed to project forward from where they are into the future, and done it at all accurately. Retrospect? No problem–Everyone can explain everything. Go from known into the future unknown? Other than predicting the failure of socialism, nobody’s really managed much of that, at all.

    I think a lot of it is down to the rapid advance of technology. There’s the lag in productivity that everyone was expecting from automation/computing, which supposedly hasn’t shown up, but which I think has been lost in the interstices.

    Consider what has gone on in my own industry, which is construction. Time was, you had this whole infrastructure of blueprint operations that created all the plans. There were stores, draftsmen, and a plethora of others. Now? Many contractors are simply rolling their own, using CAD applications and wide-carriage printers. And, there are no more blueprint shops, no more drafting instrument stores (which were everywhere, even in most smaller cities…), and all of that other infrastructure. So, at the same time those jobs were “lost”, you have the enormous growth in productivity for the individual contractor who no longer needs those services.

    You also see it throughout the rest of the economy. We used to have entire pools of stenographers and typists to do up correspondence for executive employees. Now, they mostly do the majority of that sort of work themselves, which is simultaneously both an enormous distraction for them, reducing their productivity but increasing the overall productivity for the organization.

    Whole thing is almost impossible to work out. Did the computer help things, or make it all so much worse?

  14. Kirk Says:
    September 9th, 2020 at 11:11 pm

    Now do the same thinking with robotics. Sure, they’ll replace some (a lot?) of the human-engaged income-earning activities, but once commercialized you’ll also have the parts and replacement parts manufacturers, the assemblers, the shippers, the boxes and packing materials makers, the repairmen, the software engineers writing & updated the coding, the installers, and all of the entrepreneurs who will find novel ways to use them and probably generate additional designs and support functions.

    The trick will be for each displaced human to discover his/her new function in a robotic world, much as buggywhip makers eventually figured out how to upholster leather seats in autos.

  15. Kirk…”So, at the same time those jobs were “lost”, you have the enormous growth in productivity for the individual contractor who no longer needs those services”…yet these enormous increases in productivity are not showing up in the economy-wide productivity numbers.


    “We used to have entire pools of stenographers and typists to do up correspondence for executive employees. Now, they mostly do the majority of that sort of work themselves, which is simultaneously both an enormous distraction for them, reducing their productivity but increasing the overall productivity for the organization”…some years ago, the comment was made that “The main thing we have done with the computer revolution so far is to convert highly-paid executives into incompetent clerk-typists.”

    Of course, many secretaries also performed (in a few cases, still perform) an organizing and information-flow role of great value, and the fact that it is now gone in so many organizations has something to do, I think, with the proliferation of organizational chaos.

  16. @David Foster,

    It’s a two-edged sword. On the one hand, the fact that more executives are rolling their own paperwork means that they’re not doing executive things so much any more, it also means they’re not out there munging things up, either. It’s an amelioration of the Peter Principle.

    I have been doing a lot of reading and thinking about organizational things, these last few years. What I’ve concluded is that we don’t do it very well, and we don’t even think about it very rigorously, either.

    I challenge anyone to go ask someone who actually runs something, anywhere in the economy–A company, a military unit, a government agency. Any of those, at all. What you should ask that “personage of power” is this: “How do things work in your “X”, and how do you make what you want happen?”.

    Most of them are going to tell you something at least 180 degrees out from observed reality, and then they’re going to tell you that if they want something changed, they’re going to write a memo or change a policy. None of them are going to go out on the ground and look at the environment their employees and customers experience, and then consider why they’re doing this thing they want to change. They’re never going to consider changing the environment those customers and employees deal with, in order to effect change.

    Which is why change so very rarely happens, or happens in a way the “leadership” wants it to.

    Everyone thinks in terms of “diktat”, or “What I say is more important than the reality of things…”. You can tell the employees not to use a specific door in the plant, but so long as that’s the quickest way out to the employee parking lot, and saves them a half-mile walk…? Well, yeah–They’re gonna keep using it.

    Too many of the people running things in our economy are reality-blind, and have not been taught to go beyond the “I command, thus I control” mentality. One of the most successful leaders I ever worked for in the Army almost never gave explicit orders about things he wanted done, in routine day-to-day issues. Instead, if he wanted something done, he modified the environment so that people flowed into the behavior he wanted. It’s only looking back at working around him that I realize how much more effective he was than the other leaders, who thought that they just had to issue an order, and it would fix everything…

  17. I’ve gotten huge value from my secretaries aka executive assistants….hope that I’ve used the time saved to do more good than harm…

    Organization design is very important, and receives far too little coherent attention…mushy talk about ‘teams’ and ‘de-siloing’ is not a substitution for clear thought about the problem.

    Tom Watson Jr of IBM wrote that a TIME reporter had tried to get an interview with UNIVAC, at that time a major IBM competitors. UNIVAC was too busy, and the reporter, walking back down the street, noticed an impressive-looking computer in the window at IBM. She stopped in and asked the receptionist if she could talk with someone; the receptionist was smart enough to recognize that this could be big deal and went to get Watson. The interview resulted in a major story, and Watson viewed it as an important PR win for his company.

    Bet your voicemail or ‘smart email / collaboration system’ can’t do that!

  18. I think it’s a huge issue, and one that direly needs effective attention brought to it.

    That receptionist of Tom Watsons is an example of someone in an “unimportant” position in the organization that actually performed a critical function at precisely the right time–Which is a hallmark of an effective organization. An apathetic receptionist might have done nothing, and then circumstances would flow from there. Whoever hired the actual receptionist and trained her did precisely what they should have done.

    There’s a whole calculus of this sort of thing that just doesn’t get thought about very much. Consider that same situation, and then ask what happens if instead of the receptionist doing as she did, she was conditioned by the organization not to ever “bother” the mighty Mr. Watson with “trivialities”? Or, conversely, if she were unable to leave her desk to go find him, by policy? Then, too, consider the effect of building design and all the rest–What if she were unable to reach Mr. Watson’s office in an easy manner, and had to deal with a poor intercom system?

    All those factors play into how effective an organization is or can be, and yet… Nobody seems to consciously lay them out, or examine. It all just “happens”, without much conscious thought applied to any of it.

    Organizational culture plays a major role, as well–If you’re in an effective organization, what usually happens when someone like that reporter shows up is that the first person they encounter takes “ownership” of the issue they represent, and then either deals with it themselves, or ensures that ownership of a problem has been passed to the appropriate person. If they’re really switched-on, they’ll come back to make sure something was done.

    If you run into apathetic low-level employees at initial contact, don’t be awfully surprised when the rest of your experience reflects that.

  19. Kirk,
    There are still a lot of draftspeople, a lot of the best have always been women. Most people don’t realize the skill required to make a good drawing. I still haven’t found a CAD system that does better than passable dimensioning in terms of style. At the same time, where I am now wouldn’t support enough draftsmen to produce by hand what I can produce with CAD even considering that it would relieve me of the having to track down every last component and place every fastener. I’m sort of a one man band. On the other hand, when something doesn’t turn out I don’t have to look very far to find who to blame.

    Gone with the secretaries and stenographers are most of the lower level managers, middle managers, upper level managers, lower level executives, etc. All the people that would have spent their day reading the paper produced by the secretaries and stenographers. Getting the right number of managers is still hard, and some places may have flattened their org chart too far but the balance is still heavily in the direction of greater productivity.

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