Notes & Comments

Photo Credit: Hernán Piñera || All in all, you’re just another note on the wall.

When I started blogging, I did more posts that were a series of ideas. I’m doing that tonight.

1. These last four years have been happy ones for me. Three of my children have gotten married, and I funded each wedding, even one for a son because the bride was estranged from her parents. I can’t know fully what went on there, but she is a wonderful daughter-in-law, and I can’t imagine that it was her fault. I made the mistake of trying to reconcile daughter-in-law and parents, but the parents were not receptive, to say the least.
2. In the process, I now have two grandsons. This is fascinating to me. The older grandson really likes me, and when he sees me, he walks to me and puts up his hands for me to hold him. It’s really special. He just turned one. The other is one month old, and though big for his age, is so tiny. We forget how small newborns are.
3. We’re celebrating Thanksgiving on Friday this year as a result. We gave ordinary Thanksgiving to our children’s spouse’s families. We’re happy to accomodate them. On Friday, I am making the turkey, stuffing, gravy, and mashed potatoes. I may throw in some Columbian salt-crusted potatoes as well. My married children who live near me love hanging out together, whether with my wife and me, or without us. We are happily surprised to have them dropping in unexpected. We have dinner together every Wednesday night before going to prayer meeting.
4. Now you know more about me. On to the economy and markets. My stock market model is currently predicting 2.01%/year nominal returns for the next ten years. The only era with higher valuations was the peak of the dot-com bubble. Are you happy with the idea that you will earn the return of a single-A corporate bond, but with a lot more volatility? Well, I’m not, even though the stocks I own have far better cashflow yields than the FANGMAN stocks.
5. I have proposed to Interactive Brokers the idea that they should offer a bite-sized version of indexed credit default swaps, but only allow retail accounts to short credit, and not go long credit. An alternative to this idea which is a little more expensive is to buy puts on HYG or JNK. Shorting credit is the cheap way to hedge a long equity portfolio, and a few hedge fund managers made big money on it in March.
6. My bond strategy yields more than 2%, and has a duration of less than 2 years. I have to admit that I am considering switching some of my equity funds to that strategy. That said, I am not running to do that.
7. Now, many have attributed the current rally to Biden getting elected. I am no fan of Trump. Trump and Biden have different and offsetting problems. As such, I think the entirety of the rally stems from the emergence of effective and safe vaccines. It’s even possible that the rally might have been greater if Trump had won, but who can tell?
8. I am not impressed with Janet Yellen as Treasury Secretary. This is for one simple reason: she is an academic economist. Academic economists are like people who have a Matchbox car, and think they can repair real cars because they understand a Matchbox car. The economy defies being expressed by aggregates and equations that depend on the aggregates. Studying academic economics is a waste of time.
9. Everyone is praising the Fed, except a minority that includes me. I still believe that deep recessions are a good thing that liquidates bad investments and prepares us for higher growth in the recovery. The current Fed can’t bear the least diminution of growth, and so we limp along barely growing as the Fed creates asset bubbles through QE, benefiting the rich, and harming the poor.
10. Tell Trump “Don’t Blame the Ump.” Give it up, man. If there were obvious bits of election fraud, it would be obvious to more than a few. There is too much money that could be made from a book, “How I Fought the Election Fraud.” If you have real facts, they are stubborn things. (SIde note: I always used to tell my kids, “Don’t Blame the Ump.” If you lost by the narrow margin of the final call of the ump, it is your fault that you didn’t play better. And I know this well, watching my daughter getting called out on a strikeout, when it was obviously a ball, and it was the last out of the championship game. As scorekeeper for our team I sat directly behind the umpire.
11. On the path-dependency of life, Trump is an excellent model. He wasn’t all that great of a businessman, and has declared bankruptcy multiple times for his corporations. Still, he surfed through it, and managed to make himself known during a time when reality television was cool. Though relatively liberal, he reinvented himself to express the frustrated desires of lower-middle class Americans who were suffering from lowered opportunities, telling them it was not their fault, but that of immigrants and foreign powers. Now, what he said was utterly wrong, but you have to understand: most people live so that they can say “It’s not my fault.” The true Prime Directive (sorry, Star Trek) is to find ways to excuse our own sins/faults. That is what it is to be human, and Trump is one of the prime example of this as he is never wrong.
12. But path-dependency applies to C19 as well. Trump erred by having his C19 briefings where he said said what he thought, regardless of the truth of it. He promised an effective and safe vaccine before election day, even though any rational calculator (excuse the Russians and the Chinese, who don’t care about their people) would have thought it impossible. On the bright side, we have two effective mRNA vaccines coming up, but it is after the election. Trump may have sped up the vaccines. He also discouraged people from playing it safe in terms of their conduct to avoid infecting others.
13. “Never has so much done so little.” That is my tagline for the Fed. They create much credit in the form of bank reserves, and all they do is blow an asset bubble. The banks don’t lend more, and so no inflation arises. Nor does GDP grow faster. If you want to have a target regarding inequality — it is the Fed. Now that said, the real culprits on inequality stem from information technology and foreign trade. The world as a whole is becoming more equal, but the developed nations and China are becoming less equal, because wage rates are slowly becoming more equal. Think of it: why should a steel worker in America earn more than a steel worker in China, adjusted for capital investment, and the skill to use the capital?
14. As I have said before, though it is unpopular, those that did not study hard in school, and presumed that growing up in a developed nation would give them a superior income are getting disappointed. The post-WWII experience of US superiority was a one-time event, and now things are reverting to normal. If you do unskilled work, expect to get paid unskilled wages. It doesn’t matter what stupid laws get passed by localities for minimum wages — the same total amount will be paid in wages, but it will be paid to fewer people, while many end up unemployed.
15. To those who are in the media, do you want someone with a different voice? Someone who will tell you the consensus is wrong? If so, send me an email. I am available to interact with your questions, and it WILL be different than the common drivel that I hear in the media.
16. Biden’s appointees make me think that he is not going to do much. Sorry, Progressives.

Really, I am not that worried over the election of Biden. We have had our share of lousy Presidents. The last good President was Reagan. The beauty of America is that we don’t let anyone national force their will on localities, except in the broadest ways. As such, we usually live happily amid the furor of the world as a whole.