Thoughts from the Frontline

Lately, my life has been completely packed with speeches, meetings, and in-depth, often lengthy, conversations. Plus ongoing research and writing, of course. It all culminated Thursday afternoon at the beginning of a business meeting with the leadership team from a firm that will become a significant new business partner. At the very beginning of the meeting, the head of the firm leaned over to me and asked, “What’s on the top of your mind? What are you thinking about?” The previous night we had a small group of about 15 people in my living room after dinner, and the question was similar, “What keeps you up at night?”

This week’s letter will be more like an Outside the Box than a Thoughts from the Frontline. I am feeling under the weather, and while I can read and move around somewhat, I am really not thinking all that well and am not up to wasting your time writing a letter that neither you nor I will be happy with.

Strange things did happen here No stranger would it be If we met at midnight In the hanging tree. – Lyrics from the theme song of The Hunger Games If buttercups buzz’d after the bee, If boats were on land, churches on sea, If ponies rode men and if grass ate the cows, And cats should be chased into holes by the mouse, If the mamas sold their babies To the gypsies for half a crown; If summer were spring and the other way round, Then all the world would be upside down. – Lyrics from a 17th-century English folk song entitled “The World Turned Upside Down” A bull market is like sex. It feels best just before it ends. – Warren Buffett

Here’s a surprisingly profound question: What is a promise? Dictionaries offer various definitions. I like this one: “An express assurance on which expectation is to be based.”

Today we’ll continue to size up the bull market in governmental promises. As we do so, keep an old trader’s slogan in mind: “That which cannot go on forever, won’t.” Or we could say it differently: An unsustainable trend must eventually stop.

If you’re idly conversing with someone you don’t know well, the weather is usually a safe topic. It affects everyone in some way, so it’s a shared experience – but there’s something else, too. The weather is no one’s fault. It is what it is, so you need not worry that the other person will blame you for it. None of us can control the weather. And lately, the weather has been interesting, unless you had to live through its more extreme manifestations. Then it’s been hell. Before this week, I would’ve said that Harvey and Irma wrought devastation in Texas and Florida. But then Maria thrashed Puerto Rico and took devastation to a whole new level. I have a lot of friends who live in Puerto Rico, and I’m not sure how things are going to go for them over the next few months.

This time is different are the four most dangerous words any economist or money manager can utter. We learn new things and invent new technologies. Players come and go. But in the big picture, this time is usually not fundamentally different, because fallible humans are still in charge. (Ken Rogoff and Carmen Reinhart wrote an important book called This Time Is Different on the 260-odd times that governments have defaulted on their debts; and on each occasion, up until the moment of collapse, investors kept telling themselves “This time is different.” It never was.)

If you establish a democracy, you must in due time reap the fruits of a democracy. You will in due season have great impatience of public burdens, combined in due season with great increase of public expenditure. You will in due season have wars entered into from passion and not from reason… – Benjamin Disraeli, prime minister of England, novelist In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control, and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.... In any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. Examples in education would be teachers who work and sacrifice to teach children, vs. union representatives who work to protect any teacher including the most incompetent. The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions. [Pournelle's law of Bureaucracy] – Jerry Pournelle, prolific science-fiction writer, August 7, 1933 – September 8, 2017

Ask a child what he or she wants to be when they grow up, and you’ll probably get a standard answer: firefighter, doctor, teacher – all occupations we learn to recognize at an early age. Rarely do you hear a young one say, “I want to be a writer.” I don’t recall ever saying it. Yet here I am, with writing as one of my several occupations.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” – Sir John Templeton

“There is only one side of the market and it is not the bull side or the bear side but the right side.” – Jesse Livermore “At least us old men remember what a real bear market is like. The young men haven’t got a clue.” – Jeremy Grantham

All over America, kids who were fortunate enough to go to summer camp are busy telling mom and dad what they did. Their stories will be suspiciously incomplete, but that’s OK. We know they learned something.