Saturday, July 24, 2021

The problem with having memory and experience

      "As long as the music is playing, you've got to get up and dance. We're still dancing."

          Chuck Prince, CEO of Citibank July, 2007


The dancing destroyed Citibank, and with it my retirement savings.  I remember that.


The Dow Jones Industrial Average hit a new high yesterday: 35,000.

Today's blog post is less a market prediction of future market turmoil and collapse than it is a reflection on the mindset that can come from memory and experience. I am less bold now than I observe young people to be. I see red flag warnings everywhere.


I may have over-learned past lessons. Home prices seem crazy high to me, priced way beyond what the incomes of purchasers can support. If people need to sell an overpriced house to buy an overpriced house, then experience shows me that before long, prices will adjust down. People buy houses with leverage, a few percent of the price paid as a down-payment, the rest borrowed. When trouble hits many owners owe more than their houses are worth. Banks get the houses back, and they dispose of them quickly. That cascades into more selling pressure and lower prices. 
High home prices are red flags to me. 

There is more. People are paying high prices for one-of-a-kind images, identical to others available for free, and treating them as investments. I remember the beanie baby boom and bust. Day traders are buying and selling "meme stocks," including companies in bankruptcy. I remember 1998 and 1999, when people with good careers quit them to day-trade. Investors are putting money into blind pools priced at far more than the dollars invested. I remember go-go mutual funds.  Academic economists and central bankers promote MMT--Modern Monetary Theory--now confident that money can be created without limit to buy bonds issued by the government to finance deficits. I see the public employee pension crisis. Eventually people want the government to pay people what they are owed. Red flags.

But I have been wrong in being so cautious, or at least early to think we are facing a coming crisis. We are progressing merrily, merrily, merrily, merrily down the stream, and there has been no waterfall surprise to end the joy-ride. The investment world is full of short, memorable sayings, one of which is "Would you rather be right, or would you rather be rich." The meaning is simple: An investor who is sure that he understands what is right--what ought to happen--may stick to a position while the world passes him by. 

Surely, the stubborn investor thinks, after a burst of enthusiasm for cars, the price of buggy whips would return to their old levels. Surely men would start wearing fedoras again. Surely housing prices in California will "normalize" to something like housing prices in St. Louis. Surely the old realities and relationships would re-assert themselves. Maybe not. Maybe the world has changed.

Republican and conservative media messaging on Joe Biden repeatedly points to his presumed mental incapacities. He is a doddering fool, they say, barely able to express himself, confused, and senile. It is an unfair, exaggerated view, but it has traction because he looks frail compared to many other people his age. The truth may not be dementia, but it may be the incapacity and timidness than comes from knowing too much history--from having lessons of experience burned deeply into one's memory. Humans can over-learn things. When Citibank collapsed, and with it much of my retirement savings, I absorbed a hard lesson about the fragility of markets. I see red flag warnings everywhere now. Maybe I should see them as progress, or at least new realities. Sometimes the world reverts; sometimes the world changes.

Joe Biden is old school. He believes in NATO, perhaps too well. He believes in trade unions, perhaps too well. He believes in trains as the transportation vehicle of the future, perhaps too well. He believes that Republicans will "come around" and embrace bipartisanship like the old days, perhaps too well.  

It would be possible for Biden to mis-understand his mandate and the times. Voters wanted a restoration of comity in our political discourse, but not a restoration of the 20th Century.  Biden has not yet sent clear signals of openness to fresh thoughts. Democrats want new deals and frontiers. He needs to show he is open to new realities. He may not be the person to do it. 







4 comments:

Rick Millward said...

Not to mention the majority who are on the sidelines watching this runaway train.

I think the Biden administration is proceeding with due caution, knowing that when (not if) the downturn begins they will be the lender of last resort. It will be a bailout extravaganza, and they will have no choice, just like 2008.

There's no point questioning Biden's competency. He's the one we brought to the dance.

The infrastructure bills will help keep the economy going and Republicans know this so they will oppose them because it's a political win for them when the economy tanks and they can blame the Democrats. They don't care, and as unbelievable as it is after Trump's lies, after COVID, after the impeachments, insurrections, indictments and corruption, many still can't, or won't, see it.

Just like 2008. Hopefully not worse...

Here's a thought. Isn't affordable housing infrastructure?

Michael Trigoboff said...

I think it was Yogi Berra who said, “Predictions are hard. Especially about the future.“

Ed Cooper said...

The President's refusal to go all out on getting the Voters Rights provisions in the two big Bill's hanging fire in McTurdles Senate will be responsible for the loss of both Houses of Congress in 2022, in my opinion. It is especially disturbing to me to have read yesterday that voting rights activists are being told by White House sources are telling them Biden is convinced that all the Suppression Bill's in the States can be defeated by organizing the GOTV campaigns.

Ralph Bowman said...

Yep he is old. But the voters have no say in the market destruction game. That is played by companies and money people who will not be reined in while there is a buck to be made. Sit back and let it crash, then pick up the goodies for pennies. The S and L’s, 2008, next inflation.
Our retirement income now 20 years old is shrinking fast. I bought the gun. Not ready yet. Maybe after the first stroke, or the second, maybe add on quadruple bypass and a pacemaker and a chunk of dementia. Yeah, then.