Doing the Same Thing Repeatedly and Expecting Different Results

McAlvany Recap • Jan 08 2024
Doing the Same Thing Repeatedly and Expecting Different Results
MPM Posted on January 8, 2024

Most of us can recall episodes in life where we worked toward one end but arrived at a very different one. Only 63% of law school graduates from 2015 are working as full-time lawyers. And the New York Fed did a study that found only 27% of college graduates use their degrees in their work.

That’s disturbing news on one hand, but it’s life on the other. Still, it’s one thing to shoot at a target and miss. It’s another thing entirely to shoot at the wrong target and then complain that you missed the right one.

The Fed and the government are doing precisely the latter. They implement short-term fixes for the economy and then are nonplussed that the long term is destabilized.

Doug Noland and Morgan Lewis view this same phenomenon from different perspectives this week. Doug revisits the insightful work of Hyman Minsky and updates it for current readers. Minsky showed how government efforts to stabilize the economy can in fact destabilize it.

We are all seeing this play out in real time. Minsky told us it would happen—for those who had ears to hear. As Doug explains: “That finance and financial structures evolve from robustness to progressively more fragility is the foundation of Minsky’s Financial Instability Hypothesis.” As always, Doug’s analysis is historical, factual, pointed, and insightful.

Morgan looks at the headlong pursuit of Goldilocks—ideal, temperate conditions in markets and the economy—using radical policies. This is a bit like the old Army joke that “you will be happy or you will be severely punished.” More to the point, Morgan notes that all of the component parts of Goldilocks conditions—which he defines in his letter this week—are constantly moving. For them to remain static at ideal levels is completely unnatural, and any attempt to freeze them in such idyllic stasis requires, by necessary consequence, unnatural policies.

As always, there is much for thoughtful readers to learn and ponder in this week’s publications. Enjoy them with our compliments—and again, Happy New Year!

Key Takeaways:

  • When saving is replaced by gambling
  • Capitalism has many adjectives
  • Summoning Goldilocks and waking Daddy Bear
  • Gold is strong in the back stretch, but watch out for silver’s kick

The McAlvany Weekly Commentary: David and Kevin take a look at the housing market this week, particularly in regard to the fact that many first-time buyers have been priced out of the market. They also note that everyday folks are often the ones who get into stock markets last and get caught holding the bag when the market turns down. The stacked odds against such folks are creating a gambling mentality that manifests itself in both the stock market and such things as the lottery. Regarding the markets, the hosts note that even with the recent frenetic activity, several indexes have not attained all-time highs. They also point out, importantly, that the presence of liquidity on the sidelines doesn’t necessarily mean that it will enter the game. Historical precedent argues that it is sometimes content to watch and wait.

Credit Bubble Bulletin: Doug ushers us into 2024 with the timeless analysis of notable economist Hyman Minsky. Minsky identified four stages through which American capitalism had progressed to the time of his writing in the late 20th century: commercial capitalism, finance capitalism, managerial capitalism, and money manager capitalism. Minsky died in 1996, after which Doug built on his vital analysis with the identification of a fifth stage: financial arbitrage capitalism. Critically, Minsky described how government’s efforts to stabilize markets can actually destabilize them. Doug describes the many ways in which this is playing out in today’s markets. This is deeply insightful analysis, clearly presented.

Hard Asset Insights: “After many years of the habitual use of radical activist policy measures…rather than Goldilocks, we now have an inflation problem, a fiscal sustainability problem, a government interest expense problem, and a higher interest rate problem…that is threatening economic growth for the rate-sensitive private sector… In aiming to control and contort natural economic law by habitual use of unnatural and radical activist policy measures, we are destroying the conditions that make Goldilocks possible in the first place.” Morgan observes that the forces propelling markets higher are real and powerful, but he brings necessary perspective to the discussion by noting that there are greater forces at play, and those forces will eventually dominate.

Golden Rule Radio: Miles, Tory, and Rob take the mic this week to wrap up 2023 and ring in 2024. They note that gold had a great year, but is set up for even better things ahead. The white metals certainly enjoyed no privilege as they finished the year flat (silver), down significantly (platinum), or down a lot (palladium). Miles takes this information and puts it in historical perspective by comparing charts of gold and silver between 2008 and 2011. For people who remember those events in generalities, the specifics in the charts make for very interesting comparison. A year does not a trend make, and the way things start is often very different from the way they finish. Miles adds further perspective by describing typical investing behavior by different socioeconomic groups as a serious bull market in precious metals develops. This is timely analysis—ahead of what could be the strongest up moves in the market.

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