Category Archives: Capitalism

The Real Contagion Threat is Political, by Tom Luongo

Sweden is now another data point on the growing strength of populist and nationalist movements. From Tom Luongo at tomluongo.me:

The real danger to the current institutional order was just demonstrated in Sweden. While I’ve talked at length about the potential financial contagion stemming from the implosion of multiple emerging market currencies it is the growing political crisis in Europe that will shape our future.

Sweden is The Land where Socialism Works, or so I keep getting told by ignorant leftists who cling to the power fantasy that central planning is the only way to make the trains run on time.

Central planning does do that, but only to deliver people into the nightmare of social disorder brought on by the disruption of the natural flow of capital.

Venezuela, South Africa, Soviet Union, post WWII Britain … you get the idea.

But, the effects of the collectivist mindset are far more pernicious than those extreme examples.  And it is important we understand how little policies grow into big problems over time due to shaping people’s decisions through government edicts. Continue reading

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The 10 most important lessons in finance from a legend in the field, by Simon Black

Jim Grant is well worth listening to. From Simon Black via zerohedge.com:

Authored by Simon Black via SovereignMan.com,

Jim is the editor of Grant’s Interest Rate Observer – one of the most-respected and followed financial publications in the world. In his 35 years writing Grant’s, Jim has seen a financial cycle or two.

And he’s amassed a network of many of the most important people on Wall Street (who often share their insights in his publication).

We’re excited to share a special piece from Jim in Notes today about the 10 most important lessons he’s learned in his 35 years in financial markets.

From Jim Grant:

I’ve published over 800 issues of Grant’s Interest Rate Observer to date… That’s more than four million words of market analysis.

I’ve made some good calls in that time (and, yes, some bad ones).  I’ve even gained some fame – at least in certain circles – for my more accurate predictions.

But, more importantly, I like to think that I’ve become a knowledgeable student of Mr. Market. I’ve lived through and analyzed manias and crashes.  I’ve seen interest rates fall from 20% to zero – and below… I’ve seen the stock market sawed in half and I’ve seen stocks rise far above any sane measure of valuation.

And through it all, every two weeks, I’ve shared my thoughts with a select group of readers.  Many of them have been with Grant’s since day one.

With that in mind, here are the 10 most important lessons I’ve learned in finance…

1. The key to successful investing is having everyone agree with you — LATERThe most popular investment of the day is rarely the best investment. If you want to know what’s popular, look no further than the front page of your favored business journal… Or just tune in at your next cocktail party.

At Grant’s, we seek profits where no one else is looking. We’re happy to wait for the consensus to come to us.

We’ve been contrarian since day one. In our minds, there’s no better lens through which to view the market.

2. You aren’t good with money. Because humans aren’t good with money. We buy high and sell low because it’s what comes naturally. It’s difficult to control emotions. It’s more difficult when money is involved.

But with detailed security analysis and an expert understanding of market cycles, you can minimize emotions when it comes to your portfolio.

3. Everything about investing is cyclical… prices, valuations, enthusiasms. And this will never end. The greatest investors develop a sense of when markets have reached euphoric levels. And of when fear is crippling reason.

Where do you think we stand on that scale today?

4. You can’t predict the future. Nor can the guy who claims he can.

You can, however, see how the crowd is handicapping the future. Observing the odds, you can make better choices.

You can recognize the rhythms of market cycles (see lesson 3). And with enough practice, you can profit from those cycles – or at least avoid disaster. As when we warned Grant’s readers in our September 8, 2006 issue about a bubble in subprime mortgage debt – 11 months before the crisis began. And three years later, when we advised going long bank stocks before they rallied 250%.

5. Every good idea gets driven into the ground like a tomato stake. Exchange Traded Funds (ETFs) were a great idea. They allowed investors diversified exposure to a number of markets for minimal fees.

 Today, ETFs account for more than 23% of all U.S. trading volume with a total market value over $3 trillion. And the ETF market is forecasted to hit $25 trillion globally by 2025.

Yes, ETFs allow investors to diversify into lots of markets for a little bit of money. But ETFs allocate money without consideration of value. And what happens when everyone rushes for the exits?

6. Markets are not perfectly efficient. Because the people who operate them aren’t perfectly reasonable. The debate over efficient markets has raged since the birth of public markets. Grant’s comes down on the side of inefficiencies—of lucrative inefficiencies.

There will always be value in active management. It keeps the market honest. Active managers bid for companies that have been punished unjustifiably… And they apply selling pressure on egregiously overvalued, fraudulent and dying companies. It’s these inefficiencies – and Grant’slongtime, historical understanding of them – that gives our readers special perspective.

If markets were so all-fired efficient, why did the Nasdaq reach the sky in 2000? Or banks and junk bonds the depths in 2009?

 7. Patience is the highest yielding asset. Charlie Munger, Warren Buffett’s longtime partner in Berkshire Hathaway, explained the importance of patience this way:

 How did Berkshire’s track record happen? If you were an observer, you’d see that Warren [Buffett] did most of it sitting on his ass and reading. If you want to be an outlier in achievement, just sit on your ass and read most of your life.

 Let us only say that the point survives the exaggeration.

 8. Never stand in line to buy anything. Here I have a confession to make. In January 1980, at the peak of the Great Inflation of the Jimmy Carter era, a line snaked out of the doors of a lower Manhattan coin dealer. The people in that queue were waiting to buy gold at what proved to be a generational high, $850 an ounce. I was in that queue. I’ve made plenty of mistakes since then. But that particular mistake I’ve subsequently avoided. Believe me, once was enough. 

9. Leverage is like chocolate cake. Just a little bit, please.  Markets will always correct. They corrected after the Dutch tulip mania in 1630s. And they corrected after the subprime mortgage debacle in 2007. What do corrections correct? They correct the errors of a boom.

And when markets correct, they cause the most amount of financial pain to the greatest possible number of people.

 You’ll never know exactly when these corrections are coming. But if the creditors aren’t calling your assets on the way down, you will live to fight another day. And if you happen to have cash on hand, you can make the greatest profits of your investing career.

10. “Don’t overestimate the courage you will have if things go against you.”

 “Consider all the facts – meditate on them. Don’t let what you want to happen influence your judgement.”

 “Do your own thinking. Don’t let your emotions enter into it. Keep out of any environment that may affect your acting on your own reason.”

These final three items, which I’ve included as a single lesson, are in quotation marks because I borrowed them from the late Bernard M. Baruch – one of the greatest investors who ever lived.

I know he won’t mind (after a brilliant career in Wall Street and Washington, Mr. Baruch died in 1965, at the ripe old age of 94).

I came to know the great investor in the course of writing his biography. If you read enough, you, too, can assemble a circle of friends from the past as well as  the present.

*  *  *

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

Simon also arranged a special deal with Jim for Sovereign Man readers.

Choosing Your Immigrants, by Jeff Thomas

Once upon a time immigrants didn’t come to America for handouts, because there wasn’t any. From Jeff Thomas at internationalman.com:

In the 18th century, America was made up primarily of people who, of necessity, had had to work hard. Had they not taken full responsibility for their own welfare, there was no one else to do it for them and they would have starved. As this was the case, anyone who did arrive on American shores who was unwilling to work and wanted others to provide for him, could expect to find no sympathy and might well starve.

In the 19th century, the former colonies had become the United States. Expansion was underway and the young people of the 18th century became the entrepreneurs of the 19th century. In order to continue to get the menial tasks accomplished, millions of immigrants were needed. Those who were welcomed were those who were prepared to start at the bottom, often live in poor conditions, receive no entitlements and compete for even menial jobs. If they accepted these terms, they received the opportunity to immigrate and work.

Continue reading

Market hits new highs on back of Fed announcement, forgetting the Fed is clueless, by Simon Black

Everybody thinks central bankers run the world…right up until markets crash and they can’t do a damn thing about it. From Simon Black at sovereignman.com:

Hallelujah, the US stock market is once again at an all-time high thanks to a little help from our friends at the Federal Reserve.

Every summer, central bank officials from around the world gather in Jackson Hole, Wyoming (which, if you haven’t been, is REALLY spectacular. Jackson Hole, that is, not the Fed conference.)

The event was held last week. And the main event was a speech from the new(ish) Fed Chairman Jerome Powell.

His tone was decidedly ‘dovish’, as the commentators on CNBC will tell you. Dovish is code for “We’re going to keep interest rates low for as long as we can.”

Continue reading

Atlas Shrugged, er, Mugged, by Jeffrey Harding

Elizabeth Warren could be one of the villains in Atlas Shrugged. From Jeffrey Harding at anindependentmind.com:

Current events have revealed that Ayn Rand’s novel Atlas Shrugged is not just fiction, but almost a prophesy. Elizabeth Warren’s Accountable Capitalism Act and the cronyism of Trump’s tariff policies are straight out of Rand’s novel. It won’t end well.

Ayn Rand’s novel Atlas Shrugged depicts a world where freedom and free markets are crushed by not-so-well-meaning politicians and bureaucrats. The story is a blueprint for the creation of a command economy where prices, wages, and production are dictated by bureaucratic apparatchiks. Like all regimes seeking autocratic power, the outcome, as she chillingly reveals, is cronyism, corruption, economic depression, and the rise of dictatorship.

Continue reading

The Metaphysics to Our Present Global Anguish, by Alasdair Crooke

Many are rejecting one-world utopian visions, but what will emerge in its stead is not clear. From Alasdair Crooke at strategic-culture.org:

James Jatras, a former US diplomat poses a highly pertinent question in his piece Lenin Updated: Firstly, he says, President Trump meets with President Putin and appears to make some progress in easing bilateral tensions. “Immediately all hell breaks loose: Trump is called a traitor. The ‘sanctions bill from hell’ is introduced in the Senate, and Trump is forced onto the defensive”.

Next, Senator Rand Paul goes to meet with Putin in Moscow, Jatras notes. Paul hands over a letter from the US President proposing moderate steps towards détente. Rand Paul then meets with, and invites Russian Senators to Washington, to continue the dialogue: “Immediately all hell breaks loose. Paul is called a traitor. The state Department ‘finds’ the Russians guilty of using illegal chemical weapons (in UK) … and imposes sanctions. Trump is forced even more on the defensive.”

Clearly, from the very outset, Trump has been “perceived by the globalist neo-liberal order as a mortal danger to the system which has enriched them” Jatras observes. The big question that Jatras poses in the wake of these events, is how could such collective hysteria have blossomed in to such visceral hostility, that parts of the ‘Anglo’ establishment are ready to intensify hostilities toward Russia – even to the point of risking “a catastrophic, uncontainable [nuclear] conflict”. How is it that the élite’s passion ‘to save globalism’ is so completely overwhelming that it demands their risking human extinction? Jatras suggests that we are dealing here with hugely powerful psychic impulses.

Jatras answers by evoking the zeitgeist of Lenin, when, in 1915, he made his infamous turn towards civil war inside Russia. That is, a war versus ‘Russia’ – in and of itself – its history, its culture, its religion, and its intellectual and political legacy. With up to 10 million Russians left dead by his cleansing, Lenin said “I spit on Russia. [The slaughter is but] only one stage we have to pass through, on our way to world revolution [i.e. to his vision of a universal Communism].

To continue reading: The Metaphysics to Our Present Global Anguish

Macroeconomics Has Lost Its Way, by Alasdair Macleod

Macroeconomics took an ill-advised detour into Keynesianism and has never found its way back. From Alasdair Macleod at goldmoney.com:

The father of modern macroeconomics was Keynes. Before Keynes there were macro considerations, which were firmly grounded in human action, the personal preferences and choices exercised by individuals in the context of their own earnings and profits. In order to give a role to the state, Keynes had to get away from human action and devise a positive management role for central planners. This was the unstated purpose behind his General Theory of Employment, Interest and Money.

To this day, his followers argue that macroeconomics is different from individual actions, and the factors that determine the behaviour of individuals are not the same as those that determine the wider economy. This article explains why it cannot be true, why modern macroeconomic beliefs are fundamentally flawed, and why interventionism has not only failed to produce overall benefits for the wider public, but has been at an unnecessary economic cost.

The basic fallacy

Last week, Martin Wolf (the FT’s chief associate editor and chief economic commentator) presented a programme entitled Economics 101 on BBC Radio 4, in which he raised the question as to whether a democracy can function when voters have little idea of how the economy works and why there has been so little effort to teach economics in schools.[i] The independent economists interviewed, Larry Summers and Joseph Stiglitz, and Wolf himself are strongly pro-Keynesian, and the programme made no mention of the fact that there are different schools of economic thought. The question as to what information should be given to the public and crammed into the minds of schoolchildren was never addressed, and it was clearly to be the Keynesian view.

Wolf is probably the most senior economic commentator in the British media, and one can therefore understand why the BBC, a state-owned broadcaster whose specific mandate is to be unbiased in matters of opinion, thought that by getting such a senior figure to present the programme, and for him to invite well-known economists to be interviewed, that there was no bias. The vast majority of listeners were similarly likely to be unaware of any bias. Furthermore, Wolf himself, being Keynesian, probably thinks that any other economic theory is simply wrong.

To continue reading: Macroeconomics Has Lost Its Way