Thoughts from the Frontline

Today, rather than tackle some big macroeconomic issue, we’ll go back to this letter’s roots and look at market timing and portfolio construction issues. I expect this will get both enthusiastic support and at the same time, make a number of readers uncomfortable—if not annoyed.

An odd aspect of being a writer is you never know in advance what will excite readers. I’ve written letters I thought very provocative only to draw mostly yawns.

I have to confess something: I run a huge trade deficit. It’s not with China or Mexico, but with Amazon. I buy all sorts of goods from them and Jeff Bezos has yet to spend a penny with me. It’s just not fair.

“A conservative is someone who stands athwart history, yelling stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it.” —William F. Buckley, Jr., 1955

Economic reality isn’t black and white. At any given time, both good things and bad things are happening. Ignoring one side because it doesn’t fit your preferred outlook is an excellent way to go badly wrong.

Hardly a day passes without some sort of China news in the financial headlines. There’s a good reason, too. China is the global economy’s 600-pound gorilla, second in size only to the US. Yes, it was largely a copycat business economy up until the early 2000s, but Chinese entrepreneurs have really taken charge in the last 10 years. Fueled by the profits from huge consumer demand, they are expanding not only in China but globally. This story is largely ignored in the US and in much of Europe. We hear about a few projects here and there, but we don’t understand the extent.

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

Back in 1936, in Esquire magazine of all places, F. Scott Fitzgerald wrote something profound. “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”

In my business, there is a fine line between standing by your conclusions and being unwisely stubborn. But no matter what I say, people will still label me a perma-bear or perma-bull—often at the same time. It’s an occupational hazard to which I am accustomed.

I’m back from Camp Kotok. As always, it was both rejuvenating and enlightening. The Maine woods, lakes, and general environment encourage more candor than I see most places. This, combined with David Kotok’s talent for assembling a diverse group and the always-marvelous Maine hospitality, made it another great success. It helps that David aggressively enforces Chatham House Rules and the Jackson Hole Rule. So you really don’t have to worry what you say.

This week I have something special for you: an update of “The Distribution of Pain,” one of 2017’s most popular letters. I say “popular” just in terms of feedback and reprint requests. It was thought-provoking but also sobering. I started with the original version, re-edited to clarify a few points, and added some new comments. It is still a timely, important topic.

We are all on a debt-filled train that is eventually going to crash, and if you are on it, it won’t stop to let you off first. Jumping at the last minute is not a good option, either. So what do you do? You take action now, while you have time.