Surf Report - Surf Report: Fact from fiction
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Hi everyone—I’m so glad to have you here. What a week. This week was packed with stories:
And get this: for the first time in the history of the 60/40 portfolio, the NASDAQ has been down more than 6% in a month while bonds have also been down. Bonds have traditionally been used as the “safe” cushion to hedge stock plunges like this. Something is deeply wrong. (One theory: “The lack of bidding you’re seeing in the bond market is because people don’t trust the currency.”) Meanwhile, in the world of the censorship-resistant, decentralized, peer-to-peer global monetary network with a fixed supply and rules kept out of the irresponsible paws of money manipulators:
It all reminds me of another story: Catch-22. The main thrust of the plot of this classic novel, and how “catch-22” became a colloquial expression for a paradoxical pickle to find oneself in (damned if you do, damned if you don’t) is this: the main character fears his commanders more than the enemy because the commanders increase the number of required combat missions before a soldier may return home, and retroactively raise that number as soon as it’s reached. The more missions he flies, the more missions he has to fly. This futile loop of manipulated metrics and ever-increasing difficulty just to stay alive sounds an awful lot like our runaway inflation problem, doesn’t it?
The thing to remember about the cartel of unelected bankers known as the Federal Reserve—which is neither a Federal institution nor holds any reserves—is that the political pressures they would face from raising interest rates are much, much larger than a tiny percentage increase in CPI inflation. “It's far easier to lie with CPI than to destroy the financial system by raising rates and putting a lot of banks out of business." As investor and macro analyst Lyn Alden put it: when push comes to shove, whenever the choice has been between crashing the market or printing more money, they print. They are businesspeople conducting business, and we’re caught in the middle. Never forget: Those price increases are not coming back down, you're stuck with them. Powell already told you so.
July 2021: Thomas Mann—Nobel prize-winning author of the novels Death in Venice, Magic Mountain, Doctor Faustus, and more—had much to say about the topic of inflation, being himself a German who saw firsthand the impact of hyperinflation in the Weimar Republic following the aftermath of WWI in 1923. He explored this topic in his 1925 novella Disorder and Early Sorrow. In this piece from The Review of Austrian Economics (which I plan to delve into in more depth on here in the future), Paul Cantor argues that Mann hit on an important insight on the relationship between truthful fictions and false realities—that inflation is a kind of reality-distortion mechanism that alters and subverts people’s ability to know what’s going on at all.
Notice that he’s not talking about lies per se, but rather the increasing unreliability and falseness of indictors that were previously used to judge reality, and the distrust that accumulates in a society or a system when people can’t believe anything they see, hear, or are told anymore. Things like: markets at all-time highs and charts showing The Best Economic Performance Since 1984™ while home prices remain out of reach, used car prices are skyrocketing, supply chains remain backed up, and the country is saddled with historically high levels of debt. This is what best economic performance in decades looks like? Nineteen Eighty-Four is right: “the novel examines the role of truth and facts within politics and the ways in which they are manipulated.”
Not to beat a dead horse or state the painfully obvious, but the stock market being at historic highs while investors are holding historic amounts of debt is, historically, not a great place to be. To be super clear, and to return to the reason why the traditional 60/40 portfolio of stocks/bonds is completely broken:
A classic catch-22. Eventually stocks are expected to see a “repricing event” back down to more realistic fundamentals-based valuations, which would likely plunge us into a recession or depression… but only if the government allows it. They can always try to print, stimulate, and fake their way into more bailouts and universal basic income checks like last time. But can they? Again? Stranger things have happened. Or so I’ve read.
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Exploding Topics Logo Presented by: Exploding Topics Pro Logo Here's this week's list of rapidly trending topics, insights and analysis. Topic #1 Chain-of-Thought Prompting Chart Chain-of-