Sound Money on the Drifting Sands of Belief 

money printing

My kids just exited the stage where they still believe pretty much whatever I say. We had a decent track record for a while. It seems like just a moment ago when my son actually believed that I could fly. 

Beliefs can be constructive, powerful, and sometimes blinding. They arise from experience shaped by the stories we tell about them. Often the stories are told for us; and without contemplation we run with them. 

I want to bring up the issue of market perception, and perhaps why the truths of the matters are so incredibly illusive to the vast majority.  No better example of this is the political-economic beliefs of the generations born out of the great financialization which spanned over 10 decades. 

Thankfully, my son never tried out flying for himself but sometimes children do have to figure things out on their own.

We tell them that the oven is hot - and not to touch it.  They don’t believe us. So they find out for themselves…and then they listen. They are much more likely to believe what we want them to believe.

It's similar to our collective modern investment hero worship. The hedge fund heroes of the moment or Warren Buffet, for example. The life of an investment banker. The dazzle and the glitter - the fame. Even the so-called good guys and the ones buying gold and nickels. 

And there is proof. They've been right in the past. Look at them now. They are celebrated. Most likely they will be right again. So we give them benefit of the doubt. 

Yet at all times we need to summon the courage to hold them accountable - for everything. 

How much time does it take to ask a question about reality? First of all, risk ain’t what it appears to be. Based on the evidence and aftermath of each successive credit bubble crisis, with rare exception, true risk is distorted. There is no skin in the game. 

But in the mainstream it’s different - we are bombarded with information about what to do, and yet we take on all the risk. In fact, through direct and indirect taxation, we take on the pain. The risk less cultural elite manifest through policy. 

The regulators saved us once before. This translated to they will do it again. And it’s ‘evidence’ that they were right. And so we should give them the benefit of the doubt without ever delving any deeper. Because no doubt they will be right again - for better or worse, whether they gamed the system or not. 

Of course, they only saved themselves.  If we peel back the layers we will begin to see the interventions and policy for what they are: experiments, guesses, and assumptions based on theories that have no evidence. 

Pseudo science — there is no math that governs or accurately predicts human behavior. There probably will never be one but this is the prevailing belief because it hasn’t collapsed yet. So they must we be right. 

Look at how great things are. See how good we look on the outside. People who can’t see that are the lunatic fringe. Real estate is up and interest rates are low. Anyone can finance (own) a brand new car, go to college. But again, when we explore each of these, it all dissolves into what it truly is - a sham. 

Why is real estate up? Bailouts, consolidation, low interest rate, and induced investment flows. The hunt for yield is like some kind of staged (fenced in) safari guaranteed to capture the last game. It is not organic, single family infrastructure - driven true growth. 

Why are borrowing rates low?  Because they manipulated them there by managing the rate of interest is ultimate price suppression.  Real rates are a different story - they are much higher. The rates matter for them only in terms of the debt service, not the stimulation of real growth and investment. 

Equity valuation is parabolic because margin (borrowing rates are low) is easy. Corporate buy-backs veil the truth about growth. Cash is funneled away from what otherwise might be capital expenditure. 

But what choice do they have? It’s not like there is much hope for growth or the ability to foresee future demand. The pillage is as much about the future as it is now. 

But…We are the wealthiest nation in the world. We can’t fail. 

Again, once this dissolves with little contemplation, all we are left with is the naked truth. Unfortunately, most people are nowhere near prepared for the indignity when their clothes are ripped away in the next crisis, which means they will be ripe for giving in to wherever authority tells them to scurry. 

The truth is that across all markets we are being lied to. Systematically and consciously. This is behavioral economics almost by definition. Of course, the reality is that these lies lead to unsustainable conditions, to say the least. 

I'm reminded of this each time I get the question: When? When will this end? When will the price finally escape from the grips of this manipulation?

When they decide they’ve had enough. Managed and manipulated markets are never sustainable. They always fail. And we will forget these heroes and their fleeting, criminal existence in a microsecond.  

Letting go the false paradigm - the belief that price really tells the truth about reality - is nearly impossible. You should pat yourself on the back as one of the few who have broken away from the herd. It's much more than being a contrarian investor.

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