Season of mists


“The years of war saw the mark lose three quarters of its purchasing power. The years of peace saw the process speed up, as the borrowing continued, and at first it had its friends. ‘I am not afraid of inflation,’ said Walter Rathenau, tycoon and minister, later murdered by two proto-Nazis. ‘People are wrong when they say that printing money is bringing us to ruin. We ought to print money a bit faster, and start construction works.’ He has his followers today.”


-       Christopher Fildes, reviewing ‘The downfall of money: Germany’s hyperinflation and the destruction of the middle class’ by Frederick Taylor in ‘The Spectator’, 7th September.



Autumn naturally lends itself to a mixture of retrospection and introspection. The bright and sunny certainties of summer are replaced by the cloudier anticipations of the winter to come. As the crops are gathered in, the days darken, and chill. And as animal spirits start to wane with the weakening sun, problems that swelled up during the heat of summer start finally to decay and reveal themselves. It is not typically in the Halloween month of October (the 1987 Crash was only a blip, after all) but during the mistier days of September when the market’s shadowy errors start to walk abroad.

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At play with the risk market wolves


“We have to turn the page on the bubble-and-bust mentality that created this mess.”


-       President Obama, weekly radio address, August 10, 2013.


The commentary is now off on its summer break. It will be back in mid-September.



In the 1964 Sidney Lumet film ‘Fail-Safe’, a group of US nuclear bombers is accidentally sent a “go code” ordering it to drop its payload on Moscow. A Russian jamming device prevents the US military from contacting the bombers until they’ve already reached the point of no return; thereafter, SAC protocols dictate that the pilots ignore any orders received from headquarters. The US President, played by Henry Fonda, desperately seeks some way of resolving the impasse and avoiding an escalation into a full-blown nuclear exchange. But how ?

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King Carney Fails To Command The Tides


“Sir, Martin Sandbu writes: “We should not worry about inflation – if we strip out volatile or policy-driven elements, it stands at 1.5%, according to Citigroup”, (“Carney has not yet bent the markets to his will”, August 14.)


“Please arrange for Mr Sandbu to cancel the policies concerned and to prevent the volatile situations encountered. When was the last time inflation was 1.5% ? This comment is as meaningless as my saying: “If savings rates were 5%, then I could afford two more holidays a year.” They aren’t, and I can’t.”


-       Letter to the editor of the Financial Times, from Mr Charles Kiddle, Gateshead, UK.

King Cnut The Great, more commonly known as Canute, was a king of Denmark, England, Norway and parts of Sweden (thanks Wikipedia !). He is likely to be known to any English schoolchildren still being educated for two specific things: extracting Danegeld – a form of protection racket – from the citizenry, and for the possibly apocryphal story that once, from the shoreline, he ordered back the sea. Over to Wikipedia:

“Henry of Huntingdon, the 12th-century chronicler, tells how Cnut set his throne by the sea shore and commanded the tide to halt and not wet his feet and robes. Yet "continuing to rise as usual [the tide] dashed over his feet and legs without respect to his royal person. Then the king leapt backwards, saying: 'Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.' He then hung his gold crown on a crucifix and never wore it again "to the honour of God the almighty King". This incident is usually misrepresented by popular commentators and politicians as an example of Cnut's arrogance.

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That latest Bank of England press conference in full


“The Bank sets interest rates to keep inflation low to preserve the value of your money.”


-       The Bank of England website.

From the Bank of England’s Hyperinflation Report, August 2013

In order to maintain price instability, the Government has set the Bank’s Monetary Policy Committee (MPC) a target for the annual inflation rate of the Consumer Prices Index of 2%. Since the summer of 2003, when Sir Mervyn King became Governor, the average CPI inflation rate has actually been 3.2%, but let’s not quibble about details been quite lovely. The MPC is also required to support the Government’s economic policy, namely to keep house prices up, although the MPC is technically independent from the Government, i.e. it is not physically based in Downing Street.  

The Hyperinflation Report is produced under duress quarterly by Bank staff under the guidance of George Osborne with a sockful of wet sand members of the Monetary Policy Committee.

In the United Kingdom, a laughable anaemic vigorous recovery appears to be impossible taking hold. But the legacy of adjustment and repair left by the last Labour government financial crisis means that the recovery is likely to remain impossible weak by historical standards. CPI inflation rose to 2.9% in June (roughly 1% above target, again) but will surely return to its 2% target when hell freezes over pretty much immediately. Against that backdrop, the Committee has provided some windy nonsense nicked from the Fed explicit guidance regarding the future conduct of our explicit inflationism monetary policy. The MPC intends at a minimum to inflate ! inflate ! inflate ! maintain the present highly stimulative stance of monetary policy until every last saver is dead, economic slack has been substantially reduced and house prices are higher, provided this does not entail material risks to price stability or financial stability house prices.

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Still waiting


“This suspense is terrible. I hope it will last.”


-       The Hon. Gwendolen Fairfax in ‘The Importance of Being Earnest’ by Oscar Wilde.

The failure of Lehman Brothers in September 2008 will forever be regarded by capital markets professionals as a JFK assassination-style moment, an occasion now set in amber that marked the moment when everything changed – or at least should have done. With the benefit of hindsight, it’s somewhat remarkable that the bankruptcy of a second tier investment bank better known for credit trading than for any facility with stock underwriting, for example, could trigger a global credit crunch. But it did. Andrew Ross Sorkin’s ‘Too Big To Fail’ – still probably the best example of financial crisis porn – masterfully explains why:

“It was just past 7:00 a.m. on the morning of Saturday, September 13, 2008. Jamie Dimon, CEO of JP Morgan, went into his home library and dialled into a conference call with two dozen members of his management team.

“You are about to experience the most unbelievable week in America ever, and we have to prepare for the absolutely worst case,” Dimon told his staff.

“..Here’s the drill,” he continued. “We need to prepare right now for Lehman Brothers filing [for bankruptcy]. Then he paused. “And for Merrill Lynch filing.” He paused again. “And for AIG filing.” Another pause. “And for Morgan Stanley filing.” And after a final, even longer pause, he added: “And potentially for Goldman Sachs filing.”

There was a collective gasp on the phone.”

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Shandong 5000 edges ahead in race for Fed chair


“Sir, The financial crisis is laced with ironies. In the run-up to catastrophe, bankers argued that, when it came to regulation, “less was more”. Government believed them. Bankers claimed that their risk management prowess made society safer. Governments applauded. Meanwhile, the British Bankers’ Association, the industry’s leading advocate for self-regulation, was blissfully ignorant of the biggest market manipulation in financial history – Libor, the process for which the BBA was responsible. Five years on, we now have bankers and their government cheerleaders insisting that regulators back off. Once again, bankers know best. Their risk management prowess is much improved. Oh, and the central bankers who bailed out the financial system and who are working hard to forestall a repeat are now labelled “jihadists” and the “capital Taliban”.


“Such name-calling is the ultimate irony and a new low in behaviour. How on earth can bankers, much less our public representatives, apply the terrorist moniker to well-intentioned public servants ? Where is the sense of decency, proportion and statesmanlike conduct for which we wait in vain ? And is it not the ultimate irony that the banking fraternity that happily applies the term includes among its membership the very institutions that facilitated payments to actual terrorists and violent drug dealers ?”


-       Letter to the editor of the FT from Robert Jenkins, London W9; Past member, Financial Policy Committee.

The Shandong 5000 electroglide flatbed currency printing machine has edged ahead in a fiercely competitive fight for the chairmanship of the US Federal Reserve, narrowly in front of its major rival, the Heidelberger Druckmaschinen high speed sheet fed rotary offset press. In an ominous sign for supporters of the Heidelberger Druckmaschinen candidacy, a number of US Senate Republicans are circulating a letter supporting the Shandong 5000 model in its quest to replace Ben Bernanke at the head of the world’s most important central bank. The Shandong 5000 is a six colour high speed flexo letterpress printing machine which can churn out up to $2 trillion in high denomination bills in less than 60 seconds. The only other serious contender, a 70 ton Komori Super Orlof Intaglio based in Tokyo, melted after recent overuse.

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Place your bets


“Investing in Treasuries at their currently artificially depressed yields is playing with fire. It is one of the wonderful ironies of the English language that the word “taper” not only means to “gradually withdraw” but is also a noun used to describe a long, thin candle or a long, waxed wick used to light candles or fires. Perhaps the Princeton economics professor was playing with the market in more ways than people realize when he used that term to describe his future policy moves.”  


-       Michael E. Lewitt, in John Mauldin’s ‘Outside the Box’. Hat-tip to Espirito Santo’s Marcus Ashworth. If this isn’t a team effort, I don’t know what is.

“These results have been achieved through the most perilous financial era of a lifetime. Throughout this period we have followed our objective of protecting your capital. The price has been, as I have referred to in previous statements to you, modest underperformance as we refused to put all your capital at risk when the economies of many areas, notably in Europe, have experienced moments of near collapse, and when political events in the Middle East and beyond have been so threatening..


“Sacrificing growth in value to ensure against danger has been an uncomfortable process. But necessary. We have not abandoned the overall caution which the world economy, in my view, still demands.. Defensive hedges cost us money last year, as did our historically profitable gold positions..”


-       Lord Rothschild, 6th March 2013, in the Chairman’s statement to shareholders of RIT Capital Partners plc, Company report and accounts.



Two frustrations are paramount as we watch the evolution of the financial markets today. One is the facile but obsessive coverage of apparent “forward guidance” by central bank spokespeople. This confirms the extent to which markets have become hostages to monetary stimulus, and hopes – or fears – of more, or less, of the same. This also makes sensible investing on the basis of what used to be called “fundamentals” more or less impossible, at least in the short term. The second is the seemingly widespread belief that the world economy is enjoying some form of recovery, which would then validate the ongoing melt-up in the prices of risk assets, and notably stocks. Note that these two influences are not unconnected; the ‘confidence’ generated by central bank policy pledges, with or without the subsequent liquidity gifts, drives markets higher, allowing those who still believe financial markets as discounting mechanisms are capable of pricing in nascent future developments not yet fully visible, such as an economic recovery, to see evidence of the recovery not otherwise apparent in real world data. It is all a hopelessly confused and confusing mess.

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“Buried in all the horror of the payment protection insurance scandal.. was a killer detail showing how bad the banks are at helping the real economy. The PPI fines being paid by the banks are a form of transfer from the banks to the real economy: picture Smaug in The Hobbit, lying on his mountain of gold, being reluctantly forced to part with a few coins by Middle Earth’s version of the Financial Conduct Authority. The recipients of the money do exactly what the banks/Smaug won’t: they spend it on goods and services. The Office of Budget Responsibility is the body set up by George Osborne in response to the fact that people had stopped believing official Treasury pronouncements. In their response to last year’s budget, the OBR included a modest boost to ‘household consumption growth’, i.e. people spending money, thanks to the effect of PPI repayments. The OBR’s assessment of Osborne’s other policies showed no effect on household consumption growth. So the OBR reckons that the PPI repayments have done more to help the economy than all the other stuff the chancellor is trying to do put together! Another body showed the effect of PPI fines to be a boost of 0.2 per cent to GDP: a significant figure at a time when GDP was hovering between zero and something with a minus sign in front of it. That’s really amazing. The banks are so bad at their primary function, lending money, that it’s better for the economy if they pay billions of pounds in fines to the customers they ripped off.”


-       The consistently excellent John Lanchester savaging our ever-useless banks in The London Review of Books.


As most English students will tell you, the term ‘pathetic fallacy’ describes the personification of nature, typically by despondent poets, or the treatment of inanimate objects as if they bore human characteristics. In matters of finance and investment, perhaps the best example of ‘pathetic fallacy’ is Ben Graham’s coinage, Mr. Market. Warren Buffett goes on to explain the analogy in the Berkshire Hathaway 1987 Annual Report:

“Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

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Enter the Guv’nor


“Mark Carney, the new governor of the Bank of England, could hardly have timed his arrival better. Even before he launched his bid to revive the UK economy, following years of little or no growth, data signalled that the recovery is gaining momentum without his help.”


-       Claire Jones and Sarah O’Connor, who evidently need to be hosed down with cold water, in ‘Carney eschews car for the Tube and times his arrival to perfection’, The Financial Times, 2nd July 2013.



Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular prosperity, all in the midst of temporary stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the later effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock prices, rising taxes, still larger government deficits, and still soaring money expansion, now accompanied by soaring prices and the ineffectiveness of all traditional remedies. Everyone pays and no longer benefits. That is the full cycle of every inflation.”


-       Jens Parsson, ‘Dying of Money’.


It is difficult to know quite where to start in extolling the virtues of this semi-mythical godlike being who has just descended to earth to take up his new position at the central bank of the United Kingdom. His matinée idol good looks ? His twinkling, steely, yet strangely compassionate eyes ? That cheeky yet cherubic pout ? His being appointed senior associate deputy minister of finance effective November 15, 2004 at the Canadian federal Department of Finance ? No matter. As legions of otherwise hard-nosed financial commentators dissolve into girlish transports of delight at the arrival of this thrusting young buck at the offices of the Old Lady of Threadneedle Street, there can surely be no likelihood whatsoever that the fatuous hagiographic sycophancy with which all of Fleet Street and the City are greeting his appointment will end in anything other than everyone’s expectations of economic and monetary transcendentalism and an orgiastic recovery in our national finances being spectacularly exceeded.

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Out of time


“Investment based on genuine long-term expectation is so difficult today as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave; and, given equal intelligence, he may make more disastrous mistakes.. It needs more intelligence to defeat the forces of time and our ignorance of the future than to beat the gun. Moreover, life is not long enough; - human nature desires quick results, there is a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate. The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll. Furthermore, an investor who proposes to ignore near-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money – a further reason for the higher return from the pastime to a given stock of intelligence and resources. Finally it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”


-       John Maynard Keynes, ‘General Theory of Employment, Interest and Money’, 1936.


In the ‘bible’ of behavioural investing (‘Behavioural Investing: a practitioner’s guide to applying behavioural finance’), James Montier amongst many other things addresses “just how ridiculous the obsession with the short term actually is”. He imagines a universe of 100 fund managers, each with a 3% alpha¹ and 6% tracking error². An alternative way to describe this cohort is as a population of 0.5 information ratio³ investors. “An information ratio of 0.5 is pretty good. According to Grinold and Kahn (2000) an information ratio of 0.5 would put these investors in or close to the top quartile.” See Table 1 below.

So Montier creates a little universe of quite good investors and then hits them with random shocks. Each of these fund managers, we should remember, has a “true alpha” at inception of 3%. Montier allows these managers to run money for 50 theoretical years and tracks their performance over time. The results are instructive..

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That deflating feeling


“I would rather lose half of my shareholders than half of my shareholders’ money.”


-       Jean-Marie Eveillard, quoted by Sebastian Lyon in Personal Assets Trust’s 2013 annual report.


Financial analyst and markets historian Russell Napier has an excellent feature in the current MoneyWeek magazine, in which he warns of outright deflation. He also touches on the surreal farce that passes for today’s grossly distorted financial markets. “For all its problems and excesses,” he writes, “the credit-boom era was still better than the current nightmare of having asset prices effectively set by governments.” And he quotes from the 1810 Bullion Committee established by the British government to assess whether an independent central banker should be responsible for managing monetary policy:

“The most detailed knowledge of the actual trade of a country, combined with the profound Science in all the principles of Money and circulation, would not enable any man or set of men to adjust, and keep always adjusted, the right proportion of circulating medium in a country to the wants of trade.”

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“When you give up the search for certainty, an enormous burden is lifted from your shoulders.

“The less you know - and the more honestly you recognize the limits of your knowledge - the more likely your investment programme will turn out okay. Humility is accepting that you don't know everything, or even everything about any particular topic, and it is an investor's most vital asset. Arrogance eventually ruins any investor.”


-       From ‘Fail-Safe Investing’ by Harry Browne.


In his book ‘Fail-Safe Investing’, the US investment analyst Harry Browne proposed what he called a ‘Permanent Portfolio’ which had the following characteristics:

  • Safety
  • Stability
  • Simplicity.

Each of these characteristics barely requires elaboration. Safety implies that the portfolio can protect the investor against “every possible economic future”. Stability implies that whatever market circumstances, the portfolio’s value should hold its own, incurring only modest falls. Simplicity implies that the portfolio largely looks after itself, requiring only the minimum expenditure of time in its oversight and maintenance. In terms of particular economic or market environments, Browne highlighted four:

  • Prosperity, in which interest rates are usually falling, along with unemployment;
  • Inflation, during which consumer prices are generally rising;
  • Tight money or recession, during which money supply growth slows;
  • Deflation, during which the purchasing power value of money rises.

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Taper relief


“The road to hell is paved with good intentions.”


-       Proverb.

“In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.”


-       Benjamin Graham.



As Ben Graham, the father of value investing, also observed, an investment operation “is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Challenged to distil the secret of sound investing into just three words, he advocated: “Margin of safety”. Unfortunately for all investors today, the “margin of safety” has all but disappeared.

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Why we write


“I give all this background information because I do not think one can assess a writer's motives without knowing something of his early development. His subject matter will be determined by the age he lives in — at least this is true in tumultuous, revolutionary ages like our own — but before he ever begins to write he will have acquired an emotional attitude from which he will never completely escape.”


-       George Orwell, ‘Why I write’, 1946.



In his famous essay, Orwell also put forward what he called four great motives for writing (or at least for writing prose):

“(i) Sheer egoism. Desire to seem clever, to be talked about, to be remembered after death, to get your own back on the grown-ups who snubbed you in childhood, etc., etc. It is humbug to pretend this is not a motive, and a strong one. Writers share this characteristic with scientists, artists, politicians, lawyers, soldiers, successful businessmen — in short, with the whole top crust of humanity. The great mass of human beings are not acutely selfish. After the age of about thirty they almost abandon the sense of being individuals at all — and live chiefly for others, or are simply smothered under drudgery. But there is also the minority of gifted, willful people who are determined to live their own lives to the end, and writers belong in this class. Serious writers, I should say, are on the whole more vain and self-centered than journalists, though less interested in money.

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Global warning


“No bubbles. Because it’s normal for large liquid asset classes to nearly double in value over less than a year and then drop 10% in a day.”


-       Tweet from financial journalist Alen Mattich, 23 May 2013.



“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”


-       Benjamin Graham and David Dodd, ‘Security Analysis’.



“No warning can save people determined to grow suddenly rich.”


-       Lord Overstone.



At the height of the financial crisis (i.e. 2008) it was easy to despise just the bankers for their serial and colossal ineptitude and rank hypocrisy. Now, five years into one of history’s most alarming bubbles, it’s easy to despise just about everyone in a position of financial or political authority, and for the same reasons. Take the FT front page from last Wednesday: “America’s corporate titans fight back”. With just a cursory look at the layout of the page, one could be forgiven for thinking that “America’s corporate titans” were somehow fighting against a common foe. But on closer reading it transpired that JP Morgan’s Jamie Dimon had merely succeeded in defending his own interests – as chairman and CEO of America’s most iconic bank – versus those of the people who notionally own his company, i.e. JP Morgan’s shareholders. Apple’s CEO, Tim Cook, on the other hand, was defending his company against the predations of some of America’s biggest crooks, a.k.a. the US government. “We pay all the taxes we owe,” said Mr Cook; “every single dollar. We not only comply with the laws but we comply with the spirit of the laws.” In sympathy with Mr Cook, the Republican senator Rand Paul added,

“I’m offended by the spectacle of dragging in executives from an American company for doing nothing illegal. If anyone should be on trial here it should be Congress.”

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Losing the loser’s game


“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”


-       Ernest Hemingway.


“Recovery in sight, says departing Bank of England governor Mervyn King..”


-       The Daily Telegraph.


In one of the most powerful and memorable metaphors in finance, Charles Ellis, the founder of Greenwich Associates, cited the work of Simon Ramo in a study of the strategy of one particular sport: ‘Extraordinary tennis for the ordinary tennis player’. Ellis’ essay is titled ‘The loser’s game’, which in his view is what the ‘sport’ of investing had become by the time he wrote it in 1975. Whereas tennis is ‘won’ by professionals, the practice of investing is ‘lost’ by professionals and amateurs alike. Whereas professional sportspeople win their matches, investors tend to lose the equivalent of theirs through unforced errors. Success in investing, in other words, comes not from over-reaching, in straining to make the shot, but simply through the avoidance of easy errors.

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Losing the loser’s game


“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”


-       Ernest Hemingway.


“Recovery in sight, says departing Bank of England governor Mervyn King..”


-       The Daily Telegraph.


In one of the most powerful and memorable metaphors in finance, Charles Ellis, the founder of Greenwich Associates, cited the work of Simon Ramo in a study of the strategy of one particular sport: ‘Extraordinary tennis for the ordinary tennis player’. Ellis’ essay is titled ‘The loser’s game’, which in his view is what the ‘sport’ of investing had become by the time he wrote it in 1975. Whereas tennis is ‘won’ by professionals, the practice of investing is ‘lost’ by professionals and amateurs alike. Whereas professional sportspeople win their matches, investors tend to lose the equivalent of theirs through unforced errors. Success in investing, in other words, comes not from over-reaching, in straining to make the shot, but simply through the avoidance of easy errors.

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The tulip harvest is in !


“When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.”


-       John Hussman of Hussman Funds in his April letter.


Amsterdam, March 1637 (Ruyters): The latest Dutch tulip harvest is in, and experts confidently predict another bumper year for tulip growers and tulip investors alike. Billionaire hedge farmer Jon Paulsen is rumoured to have added hyacinths to his multi-strategy offering and has just launched a fund denominated in daffodils. Tulip stocks climbed by a few millimetres, as they are prone to every day if they grow at their normal organic rate; Couleren bulbs rallied another 2 guilders in heavy Antwerp trading; Rosen and Violetten bulbs ended the trading session more or less unchanged, albeit a bit squashed, and at record highs. The market has been further buoyed in recent weeks by a tide of manure issued by the leading tulip advocate Pol Kruygman from his op-ed column in the New Amsterdam Times, ‘Witterings of a Tulip Fanatic’. Kruygman promised to keep the manure coming, whether anybody wanted it or not.

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Still stuck in the Middle Ages


“We have Stone Age emotions. We have medieval institutions.. And we have god-like technology.”


-       Edward O. Wilson.


The BBC reported last week that researchers from IBM had created the world’s smallest motion picture after manipulating individual atoms with a scanning tunnelling microscope. They separately reported the proposals of two Dutch engineers to introduce self-lighting weather warnings on motorways, and a dedicated driving lane that could recharge electric cars as they passed over it. As artist Daan Roosegarde pointed out, auto manufacturers spend billions of dollars on car design, research and development,

“but somehow the roads.. are completely immune to that process. They are still stuck in the Middle Ages, so to speak.”

Another staggering gulf lies between what we as individuals are capable of doing – more or less anything to which we put our minds – and what our governments are capable of doing – more or less nothing, other than mindlessly to continue the dismal and seemingly inexorable cycle of tax, borrow and spend. At a recent City debate hosted by Marcus Ashworth of Espirito Santo Investment Bank, ‘Is monetary activism the answer ?’, Steve Baker MP and Ewen Stewart of Walbrook Economics essentially revealed the paucity of government thinking through generations, and across the political spectrum, that gave rise to such a desperate question in the first place.

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‘An economics correspondent’ writes..


Keynesian economics: “the pseudo-scientific economics of averages.”


-       Friedrich Hayek, ‘A Tiger By The Tail: the Keynesian legacy of inflation’.


In 1816, the net public debt of the UK reached 240 percent of gross domestic product. This was the fiscal legacy of 125 years of waging war against the French – rightly, in my view. I mean, all that garlic – come on. So anyway, what happened next after Britain was landed with this crushing burden of debt ? The Industrial Revolution. Yes, in 1764 in the village of Stanhill in Lancashire, local public relations consultant Lansdown Hargreaves was so repelled by the enormity of state debt fifty years before it had happened that he fell over his young wife, Jenny – and the Spinning Jenny was born. The Spinning Jenny was a means of pumping water from deep mines. I know all about the mining industry and indeed all other industries having devoted my entire professional life to the study of economics and nothing else. I do wish people without expertise or experience would stop pontificating about things they don’t understand using theories that have been fundamentally discredited.

What I find particularly galling is when economics correspondents extravagantly flaunt their lack of historical analysis or even basic logic and seize, speciously, on one extreme and specific data point and then use it to develop a baseless theory that has no practical validity whatsoever in the broader economy or in relation to any other period and indeed constitutes a gross distortion of reality, causality, the space / time continuum, gravity, and basic common sense. I also dislike it when narrow pillars of the establishment dismiss out of hand and with minimal detail anything which disagrees or fails to conform with their (very conventional) world view. As I was saying, 19th Century entrepreneurs – and I am one too (a 19th Century entrepreneur, that is) – were so disgusted by the build-up of government debt that they immediately started the Industrial Revolution as a means of signalling their contempt.  Cornish engineer Gromit Wallace then managed to quadruple the national debt which of course led directly to a surge in GDP and the creation of the Internet.

People are (wrongly, in my view) worried about inflation, and the explicit inflationary stimulus of quantitative easing, which I support. The economist John Milton Keynes once wrote as follows:

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.”

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Makes you think, doesn’t it ? Well it doesn’t make me think, of course, but there you go.

Austrian school economists are all child-molesters. It’s a fact. Look it up. Ludwig von Mises and Hitler were actually the same person. I hate Americans, especially Austrian school economist Americans. Ron Paul selfishly started the Great Depression but happily the Second World War ended it. The bottom line is that it’s best to enjoy tremendous influence within the corridors of the Keynesian establishment, and you don’t. And whereas I am being direct and cogent, you are merely being simplistic.

People often ask me who should be in control of our money. I say to them: the state should be in control. Salus rei publicae suprema lex. That basically translates as: I get paid by the establishment. I therefore support Keynesian stimulus, down to the very last taxpayer’s dollar. When that runs out, well, maybe I may have to change my mind.

I noticed this week that Rwanda had just borrowed 10 year money at 6.875% despite only having a ‘B’ credit rating. I also noticed this week a piece on Bloomberg that pointed out that central banks were now busily buying equities with their reserves. To those who point to a global financial system on the verge of flying apart courtesy of unparalleled risk taking and the grotesque distortion being imposed on asset values via zero interest rates designed to bail out insolvent banks and insolvent governments by central banks gifted with all too much arbitrary power, I say: your fears of hyperinflation are foolish and you are being stupid. There is no problem here. All is well. Please move along now. The emperor’s new clothes do indeed look fantastic. Pay no attention to the man behind the curtain.

The US deflationary recession of 1920 is an exception. Since it points to the alarming occasion of a recession that was not met with a policy response by Big Government and which therefore resolved itself very swiftly, it must always remain an exception. Since it is an exception, it is therefore an exception.

I met a fellow the other day – he struck me as something of a pompous windbag – harrumphing along through life and mostly ignorant of economics and economic history, not ashamed to resort to sarcasm, ad hominem insults, and all the tools at the disposal of a barrack-room lawyer. Then I realised I was looking in a mirror.

The all-powerful state must be protected. Even if it means destroying all of its citizens along with their puny wealth. HULK LIKE ALL-POWERFUL STATE. HULK CRUSH PRIVATE WEALTH. EXTERMINATE ! EXTERMINATE ! EXTERMINATE !

‘An economics correspondent’ is a respected economics correspondent. But then so is Paul Krugman.

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