Monetary policy determining winners and losers is a deeply disturbing prospect. In this week’s Outside the Box, entitled “Easing the Night Away” (how many of you instantly recognized that as a ref to a 1997 tune by Chumbawamba?), my friend Sam Rines reminds us that monetary policy cannot solve every problem. And he explains why, after the global glut of quantitative easing, that truism has probably never been more true.
Sam works for Chilton Capital Management in Houston and writes for the National Interest. He is quite the creative young thinker and worth paying attention to. His interests and blog topics jump all over the place, a personality quirk we have in common.
Moving right on to a personal note, I made a quick trip to the doctor today, and perhaps it is time for true confessions. Those of you who get uncomfortable with personal stories might want to cut right to Sam’s piece below.
For the past four or five years I have been having small pellets of testosterone placed subcutaneously – they’re designed for slow release over six months. My doctor, Dr. Herzog, told me that if I was quite active and working out a lot, they would begin to run down after five months. About two weeks ago I noticed that my body was not quite as responsive as it had been, but I put it down to the low-calorie diet I was on at the time.
But as I came off the diet things didn’t improve; they got worse. Poor sleep, less energy, and a host of other unpleasant effects. The last four days in the gym I have been noticeably weaker and shorter of breath, to the point where my trainer called me on it. As we discuss a lot of things, he asked if it was time for the renewal of my testosterone pellets. I went home and checked, and sure enough, I had gone past not just five but six months. I had done this once before and ended up feeling exactly the same way. Getting old is in general a bitch, but doing so in the space of two weeks is really not fun.
I take a lot of supplements and some pretty cutting-edge nutraceuticals (which Pat Cox has found for me and Dr. Mike Roizen has vetted). Frankly, the last thing I would give up would be my testosterone pellets. Not every man needs them, but there is a percentage of men whose bodies either produce less testosterone or whose bodies turn testosterone into estrogen, thereby reducing the amount of testosterone available and increasing the effects of aging. These pellets reverse that process and help me sleep better; focus my thinking; increase my physical endurance and overall energy; and, when combined with weight training, increase muscle mass, which makes it easier to maintain my proper weight. And there are a host of side benefits as well.
I should point out that the pellets I use are natural rather than synthetic testosterone. All the negative studies around T-rone supplementation seem to be centered on synthetic testosterone, and Dr. Herzog says there is a reason for that. (The FDA should pay attention to this, but characteristically doesn’t). There are numerous very positive studies (and whole books) on testosterone supplementation for the prevention of breast and prostate cancer and even Alzheimer’s. In my own case, half a dozen years ago I noticed a severe drop-off in my physical ability, energy, and sleep patterns. Working out, and indeed just going through everyday life, was like swimming through peanut butter. Hormone analysis said I needed some extra testosterone plus an estrogen inhibitor.
At the time, I had a number of friends who took testosterone injections and others who used cream. The injections have the problem of emotional up and downs, and I won’t go into the problems with the cream. That’s getting into way too much information. The pellets are a simple and essentially painless method that means I go to the doctor every five months for maybe 30 minutes and then don’t have to think about it. It takes a month or more for the “full dose” to ramp up, but then it’s steady until it begins to wind down five months later. If you receive your next dosage while the old pellets are winding down, you don’t notice any difference. If you forget, like I did, you suddenly realize your body needs a little help. My assistant Mary now knows to schedule me every five months religiously.
Those of you who are interested can go to http://www.ht-ca.com. Rather than argue with me about the science, read it and then argue with them. That’s Dr. Herzog’s website, but he can direct you to other doctors around the country who do the same thing. For me it’s about 600 bucks every time I go in. It’s the best investment I make.
And that’s all from the home front. Which might be more than you wanted, but for some of you this could indeed make a big difference in your life – a lot more difference than an extra few percentage points on your investment portfolio. Have a great week. Somewhere in the background I hear Elvis Presley singing “Off to Atlanta,” or something along that line.
Your just trying to be a full-service analyst,
John Mauldin, Editor
Outside the Box
Easing the Night Away
By Samuel Rines, Chilton Capital Management
Originally published Oct. 27, 2015 in the National Interest
It is a truism we have heard, in one way or another, from many central bankers including Ben Bernanke and Alan Greenspan: Monetary policy cannot solve every economic problem. After the glut of global quantitative easing, the assertion has probably never been more accurate. This reality could pose a problem for the Fed, the ECB and others as they combat future recessions, but there is also the potential for monetary policy to become – or continue to be – far more relevant in determining global economic winners and losers. And monetary policy determining winners and losers is a deeply disturbing prospect.
With few methods of spurring growth left, economies are heavily reliant on central bank actions to maintain growth. Every poor data point in China is met with calls for additional fiscal and monetary stimulus. Likewise, ECB President Mario Draghi made it clear the ECB was prepared to increase its level of stimulus to reflate the Euro economy. And the Bank of Japan, which exemplifies the perils of over reliance on monetary policy, is likely to do more as inflation dips below its goal to a two-year low. Even the Fed, arguably falling for the Greenspan Trap, cited global economic events as an excuse for delaying a widely anticipated rate hike at its September meeting. When in doubt, increase stimulus, or delay rolling it back.
As many countries in the emerging world will attest, commodities were an easy route to growth. But it is notoriously difficult for central banks to spur economic activity in commodity-driven economies when trouble hits. Much of this is due to the dominance of the U.S. dollar in pricing commodities: emerging economies have no control over the price of the commodities they export. Now that the party is over, commodity driven economies face difficult choices for monetary policies.
Without prudent fiscal policies during commodity price surges, it is difficult for emerging commodity economies to combat prolonged downturns. Since there is no ability to spur the principal driver of the economy, these countries have limited options to ride out a commodity bust. One of the tempting options is to lower interest rates and therefore weaken the domestic currency. By lowering the value of the domestic currency, the economy gains more of its own currency when the commodities are sold in dollars. And local revenues need not fall dramatically, even with lower prices. There is a caveat, though: weakening a currency should lead to inflation, and – in some cases – lots of it. It can spiral, and the central bank can be forced to abruptly change the direction of policy to avoid hyperinflation or worse.
Policy errors by central banks have always had consequences. Former Federal Reserve Chairman Volcker is famous for the fighting the inflation generated – or at least inflamed – by policy errors of his predecessors.
This time around, however, central bankers have little ability to act counter-cyclically. Much of the emerging world is unable to stimulate its way out of a recession or slowdown, because the dollar is destiny. And the developed world will have a difficult time escaping monetary stimulus, because the consequences of “lifting off” are too much for most economies to handle. Central bankers are, for the most part, trapped.
If the U.S. begins to scale back easing while other developed economies continue to ease full-bore, the dollar will strengthen even more and policy will tighten simply due to its deviation from the others. For the Fed, moving at all may be equivalent to moving too much. Other central banks’ actions complicate the Fed’s decision. And if the Fed tightens too much, the U.S. economy could contract. This convoluted calculus is the reality for monetary policy.
The truth is most central banks have already failed. The Fed, the ECB and certainly the BoJ have consistently missed their inflation goals. All currently have loose policies. Unfortunately for the emerging world, the U.S. is the least loose, pushing the dollar higher and complicating their policy decisions. When central banks fail to accomplish their mandates, it becomes dangerous for the global economy. There are few escape hatches for stimulus and loose policies when everyone is doing it. And it becomes all the more difficult to quit.