GURU CORNER

High P/E stocks beat Low P/E more in the last 10 years than they did in the 10 years to the http://Dot.Com peak. 

This year's State of the Union was particularly noteworthy for its showmanship. Scholarships were given away, medals were awarded, families reunited. At a time when national politics is bad theater, President Trump is clearly its most gifted star. 

If I were to give one piece of advice to my children about managing their investments, it would be “focus on the process, not on the results.”

In other words, don’t get caught up by all the fads and crazy trends in the world. Do what’s sensible and logical. Even if you have to wait years – and you probably will – in the end, the market will vindicate you.

Undisciplined investors always get what they deserve. The markets always come back to fundamentals.

Economics is not intent upon pronouncing value judgments. It aims at a cognition of the consequences of certain modes of acting.

Great American comeback?

As you know, our hypothesis is that the U.S. peaked out in the late ’90s. It’s been sliding ever since, with demographic, political and financial trends making it almost impossible to stop.

Empires do not back up. They do not cut expenses. They stick to their guns and their delusions of exceptionalism. They go for broke, in other words… and get there.

Mr. Thomas calculates that the U.S. empire – if it tracks the others – will be finished in 2026. But maybe Mr. Trump really has turned it around. Maybe Mr. Trump really is a stable genius, after all.

Maybe rejecting downsizing – though a classic mistake, made by every other empire over the last 3,000 years – will pay off this time. 

After very quickly becoming an advanced economy, South Korea is experiencing declining growth and labor productivity. The culprit, as usual, is government intervention in the market to favor certain interests. 

Everybody loves inflation. Businessmen inflate their numbers. Politicians inflate their promises. 

They turned to Mao. His successors still run the show in China. Now, it is they who are ripping off the public with inflation.

Yes, Dear Reader, inflation is no cure-all. It is just a rip-off.

Experts who predicted economic doom as Brexit approached obsessed over the problem of "transaction costs" in trade. But the EU was imposing countless new transaction costs of its own. 

America’s Inflationary Era got underway on August 15, 1971, when the U.S. introduced a new currency, not backed by gold or anything else. This was the First Phase, from ’71 to ’81, when inflation went into consumer prices.

Consumers didn’t like it.

Then, Paul Volcker “beat” inflation by putting the prime rate up to 20% and bringing on a recession. But inflation didn’t die. It simply moved to asset markets, where it was warmly greeted and continues to be more than welcome.

This was the Second Phase.

The Third Phase began on September 17, 2019, when the Federal Reserve began printing money to cover U.S. deficits, with no pretense of an emergency.

There is productive consumption and there is non-productive consumption. In the Keynesian mind, it's not necessary to produce anything, so long as people spend and consume endlessly, even to the point of destroying real wealth.

Cometh economist Stephanie Kelton. She advises Bernie Sanders.

Watching a beautiful woman is a pleasure, even when she is talking nonsense. But her line of talk is so nonsensical we couldn’t watch her very long, even if she were stark naked.

“We’ve increased spending and now we have $1 trillion budget deficits,” she pointed out on TV last week. “But we’ve seen none of the bad things that traditional economists expected. No crowding out. No spike in interest rates. No inflation.”

Nothing bad has happened yet, she believes. And from this she extrapolates that nothing bad is likely to happen…

As we saw last week, Rudolf von Havenstein might have said the same thing in 1920… or Arthur Burns in 1970… or Hugo Chavez in 2001. No one rings a bell at the end of a bull market… or at the beginning of an inflationary disaster.

Markets use money – prices – to tell us when real things are cheap or when they’re dear. That information signals when we should speed up – buying, investing, hiring – or slow down.

Printing more “money” just distorts the picture. It tricks people into thinking that they have more time and resources to work with.

But Ms. Kelton doesn’t worry about it. Just add “liquidity,” load up the wagon with debt… and race along until the wheels fall off.

In a large enough democracy, the impact of an individual vote is statistically zero on the margin. No single person’s vote will ever impact an election in a democracy of even modest size (electoral college, popular, or any other), and since their decision is independent from other voters, the decision to vote is itself irrelevant.

To be continued…