Thoughts from the Frontline

If the inflation numbers leave you scratching your head, join the club. The August data was especially perplexing. The Producer Price Index came in hot, up 8.3% in the last year, inviting 1970s comparisons. Obviously, our current situation is different in many ways. But so were the 1970s, at first.

I have been writing this letter for 22 years. Sometimes I look into the future and other times merely try to explain the present. Today I’m going to look at several possible futures. There are forces at work in both Congress and the Federal Reserve that could take us down radically different paths. There are also changes in the Zeitgeist, the way we act and think both in and as a society, that are going to have major impacts.

Remember math class? Let me give you a quick refresher.

Having been Puerto Rico residents for almost three years now, Shane and I have learned a few things about living in the tropics. In Dallas, we didn’t often think about hurricanes, though we did have tornadoes and severe thunderstorms. Ditto for earthquakes. North Texas is pretty stable, geologically speaking.

I write this letter on my way home from Steamboat Springs, Colorado, where I spoke to the fascinating “GoBundance” group of mostly young, successful, enthusiastic entrepreneurs. Before that I was in Grand Lake Stream, Maine, for the Camp Kotok economics/fishing retreat. I’ll have some details for you later. Today we will look back a few months to a Strategic Investment Conference presentation that truly affirms my optimistic outlook for both business and humanity.

“How did you go bankrupt?”  “Two ways. Gradually, then suddenly.” ―Ernest Hemingway, The Sun Also Rises

If you look just at 2021, it seems the US economy is tearing higher. Real GDP grew an annualized +6.5% in the second quarter, the Commerce Department estimated last week. This follows a similar +6.3% first quarter, and a pandemic-interrupted 2020 that turned out not so bad in the end. The July unemployment report showed more impressive jobs growth. The Fed will increasingly have problems maintaining its credibility with interest rates at the zero bound and massive QE and inflation still rising.

“T.S. Eliot once wrote, ‘Only those who risk going too far can possibly find out how far one can go.’ It seems the US financial system is bound and determined to find out.” —John Hussman, July 29, 2021

Great news: The US economy is officially out of recession. We know this because the National Bureau of Economic Research’s official recession-calling committee said so this week. The economy has been in an expansion phase since last April, making this the shortest recession on record at only two months.

I have mixed feelings about China. On the plus side, I think the country’s massive economic transformation may be one of the most impressive events in human history. Bringing hundreds of millions from primitive rural lives into relatively prosperous cities within a few years was awe-inspiring. I greatly admire the millions of Chinese entrepreneurs worldwide who create jobs and technology. They’ve helped the entire world in countless ways.

In the 1980s, British Prime Minister Margaret Thatcher liked to say, “There is no alternative” to her market-driven economic reform ideas. She said it so much people began abbreviating it as “TINA.”

It is as essential to democracy that the minority should voluntarily submit to the measures adopted as it is that the majority should voluntarily approve them. Democratic government rests upon the principle that it is better to count heads than it is to break them. The principle is a good one, but unfortunately, men will not, under certain conditions, so regard it. By and large the principle works well enough, at least in countries where the democratic tradition is well established, only as long as the issues to be decided do not involve those interests which men will always fight for rather than surrender.