EPISODES / WEEKLY COMMENTARY

The Feigned “Blue Wave” & The Real Fed Wave

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Oct 13 2020
The Feigned “Blue Wave” & The Real Fed Wave
David McAlvany Posted on October 13, 2020
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  • A monetary tsunami continues to pour over every asset class.
  • Low interest rates are like free money to big institutional investors.
  • Putin claims “shared values,” between Biden/Harris & Communism.

 

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

The Feigned “Blue Wave” & The Real Fed Wave
October 14, 2020

“Maybe we call this, not the blue wave, but the green wave, because that is our currency color. We’ve learned from history the cost of security is freedom. And what we are learning in terms of the markets is the cost of predictability. It’s in the stability of our currency. So whether it is a blue wave, or an orange wave, it’s still the Fed tsunami I worry about most.”

– David McAlvany

Kevin: You know, David, something fun to do every once in a while is to just go walk outside in a group of people and start looking up. What you will find is, a second person, then a third person, will look up. Before long, everyone is looking up. There may not be anything to see, but it’s human nature, if someone thinks they see something in the sky or if you see somebody looking up.

David: “What are you looking at?”

Kevin: Yes. “What are you looking at?”

David: They want to know.

Kevin: It reminds me of the Federal Reserve. They start talking about things – not about the past, not about the present, but they start acting as if they know what the future is. What in the heck is this blue wave? Is it just all of the mainstream media looking up at the same time, hoping that everybody else does?

David: Well, do you see it? I think I see it.

Kevin: I don’t know that I see the blue wave they’re telling me about.

David: Well, the blue wave is quickly becoming what the news media prints as an inevitability. I think it’s wishful thinking. Most often it is repeated by those outlets that want to speak reality into existence. “This is what is going to happen. We’re going to have a clean sweep of the Senate. We’re going to have Biden and Kamala as President and Vice President.”

Kevin: It reminds me a little bit of, when you’re looking at financial technical charts, a lot of times you are also looking forward in time, and you wonder if it is a self-fulfilling prophecy.

David: I think to talk about the blue wave is to create a sense of inevitability, and there were some aspects of that in 2016 where there was just this energy coming into the election. It ended up being a little bit different than everyone anticipated – a real surprise. And to be honest, I prefer the Elliott Wave to the blue wave. It’s where you’re looking at the probabilities of upside and downside, and you’re looking at charts and numbers, and stripping away some of the political aspects. If the Dow closes above 29,174, Robert Prechter says the probability of a rise into 2021 will increase substantially. On the downside the most important level is 27,773 on the Dow, or the corresponding number on the S&P 500 would be 3,361. These are the lows set on Tuesday, October 6, and you break below them and it’s Katie bar the door. Watch out below.

Kevin: Just for clarity, for the person who doesn’t watch the news, good for you. And for the person who doesn’t have Internet, maybe, good for you, too. Blue wave is really just referring to a Democrat sweep at this point.

David: Politics is too often an expression of self-interest, and frankly, an expression of tribal desire. In an age of fake news and twisted narratives from both the right and the left, what is published may have little to do with reality, and more about desire.

Kevin: What we want to have happen, or what the media wants to have happen.

David: Yes, what you want to be versus what truly is. And you will find that your proclivity toward the news outlet that you want to watch reflects your desire. So on that point, we are going to be inviting a philosophy professor – imagine that.

Kevin: [Laughter] To have a bent that way.

David: Yes, to be a guest on the program and discuss fake news with us. And this is not from the standpoint of deciding who is right or wrong, but from the standpoint of epistemology, which is one of the four areas of philosophy, along with metaphysics, ethics and logic. Epistemology is that part that asks, “How do we know what we know? And how do we come to believe something as true?” So, just in time for the election, this book which is titled, Beyond Fake News: Finding the Truth in a World of Misinformation, written by Justin McBrayer, published by Routledge, I think will cut through some of our misconceptions about knowledge, some of our conceptions about truth, and of course, help us see perhaps the 24-hour news cycle a little differently.

Kevin: I think something that has really changed over the last ten years has been this rise of fake news. It can inspire either massive depression, or it can inspire excessive optimism. I think more of the markets than I think of politics, because everything in politics right now, I think, is depressing. But on the market front, you seem to have excessive optimism.

David: I think one of the things I would say about that is, this iteration of fake news, and this particular timeframe feels different, but I felt the same way when I was looking at how there was character assassination in the news media, and it took going back and reading the Hamilton biography to realize that the news media was just as salacious and cruel hundreds of years ago. If there was political gain to be had, they had no qualms with dragging a man, or a woman, through the mud and sort of tarring and feathering them. Whether it was true or not did not matter. There was a political gain and an advantage that was being sought.

Kevin: So nothing new under the sun?

David: Not really.

Kevin: We call it fake news.

David: We just have a different moniker for it. We call is something slightly different. So there is some talk of the wisdom of the markets, and I tend to want to periodically ask about the wisdom of the markets when what is on display seems to me more akin to a frat party than the gathering of all the sage-like personas.

Kevin: Everybody is looking up for no reason, or maybe because they’re drunk.

David: Maybe. Having a group of people all looking in the same direction at the same time doesn’t define anything, but in the case of a frat party, what you could describe as beer goggle judgment. Maybe we don’t want to admit to this, but the world in all its complexity becomes very clear after a six-pack, and the many join the one. There is a transformation that occurs where any girl becomes the most beautiful girl. Beauty emerges somewhere after four, five, or six beers.

Kevin: There is a difference, liquidity-wise, though. Liquidity of beer is something that will cloud the judgment, but liquidity of money actually does the same thing.

David: So can we first ask, when we’re looking at the wisdom of the markets and this collective judgment, “Are the markets reflecting excess liquidity? Is this a sober-minded judgment, or is this the inebriated judgment?” And so, with that, does Biden look that good through beer goggles? I don’t think so (laughs). Does Trump, for that matter, look that good through beer goggles? I don’t think so. And so, what is the market getting enthusiastic about, coming back to this notion of a blue wave? Can the market really be enthusiastic about comrade Kamala for president, after Pelosi floating the 25th amendment balloon?

Kevin: Wasn’t that interesting? I think they are sensing the blue wave, or they are hoping for the blue wave, as well, because they are already setting things up for Biden to not even be there.

David: Right. So again, is that what we see? Or is it really not a blue wave at all? Are we talking about a monetary tsunami?

Kevin: Did you see what people said when they were polled, when they actually polled African-Americans about Kamala Harris?

David: That was the Rasmussen poll of people likely to vote Democrat because of Kamala Harris, or less likely, and it was equal on both sides – 32% on both sides. 32% said less likely to vote because she is on the ticket, equal to the number of people who said more likely. It was fascinating.

Kevin: So there is a battle of waves that you’re talking about. You bring up the blue wave, which is this supposed Democrat sweep, but actually, the wave that really is coming, and the wave that actually has begun, is a monetary wave, is it not?

David: Yes, because of course I don’t know who wins, but the obvious wave, to me, is the monetary tsunami that continues to pour over every asset class, and its defining pricing insanity. It is not the sober and wise judgment of the market. To me, it is collective amnesia on bubble dynamics. It is collective risk-taking due to the explicit Fed support of asset prices. That is what it is, plain and simple. It is not some sort of a read into the future and who wins, and what are the ramifications. Because again, the mainstream media is fond of attribution, and in my senses it is sort of a causal type thing. You get this on CNBC or Bloomberg all the time. Something happens, you have a 25% move in a particular stock and the pundit is out there to say, “Well, it’s doing that because…” And there is no dot to connect, they just have to have something to say.

Kevin: They have to keep you entertained. That’s not fake news.

David: And so it must be a Biden victory and Senate sweep that’s driving markets to new heights. I think it is the Fed wave. It’s the free money wave. It’s not the blue wave, it’s not the orange wave.

Kevin: So the truth of the matter is, actually, people are casting their votes right now in the market for the Fed. Really, it’s not a presidential vote right now, it’s a money vote toward markets and excess liquidity.

David: Precisely. When you’re looking at the financial markets it reflects financial conditions. We live in a period of excess risk-taking where optimism is not reflective of economic anticipations, what we have in the works in terms of the economy. It’s not reflective of the social mood in general, which frankly, today, is very contentious, very angry, even to some degree, scared. And it’s not reflective of who is going to win or not win the elections. The mainstream media, actually, on that point has been pretty poor in gauging outcomes.

Kevin: It really makes you wonder if we actually had good news that the economy was going to recover on its own, and it was time for the Fed to step aside and let the market do what it does, and let the economy do what it does, I would imagine the market would go down.

David: To me, you look at market optimism in the present, and what it really reflects is the market’s response to those outsized measures that central planners have taken.

Kevin: Desperate measures.

David: So on the one hand you have market optimism. On the other hand it’s the desperate measures of central planners spending trillions and trillions of dollars to keep spirits high for fear of a systemic reset. You don’t have to go back very far – March of this year, and punctuated just about once a year for several years, of the market getting ready to collapse, and being in the process of a complete systemic unwind, and then come policy measures which hold it all together.

Kevin: So much free money, the promise of low interest rates, the promise of continuing the way we have.

David: The problem is, it is not a structural problem. We’re talking about chewing gum and bailing wire. And while I appreciate the MacGyver nature of duct tape, you don’t want to take a 20 trillion dollar economy and assume that we can move forward on some sort of high-powered duct tape. So we are, in fact, courting disaster in the financial markets. This week you had retired Goldman front man CEO Lloyd Blankfein who was talking on CNBC, and he said, “Look, low interest rates are like free money for big institutional investors.”

When you lower interest rates, you flow the capital to the guys that can get it and leverage it, and free money create bubble-like dynamics. That was his whole theme on this CNBC interview. And that’s what he sees in the market – bubble-like dynamics, too much risk-taking, not enough verification, not enough business plan analysis. He started poking at the SPACs, Special Purpose Acquisition Companies, which are just one of the many bubble dynamics on display, at which he was referencing.

Kevin: On the SPACs, I think it is worth talking about a little bit, because what we are seeing is very similar to what we saw about 20-22 years ago with the dot.com bubble, where it really didn’t matter what the investment was, as long as it had dot.com behind it, people would just throw money at it. The SPACs are like that. Would you explain just a little bit to the listener this new development where money is flowing to things that really don’t even have to define themselves?

David: You generally think of an IPO as a company going public. In this case, it’s going public, and we’ll tell you what the company is after we’ve raised the money for it. Special Purpose Acquisition Company means, “You’re going to give us a couple hundred million bucks, and then we’re going to put it to work, and we’ll figure out, on the basis of our reputation and connections, what to do.” You’ve got Paul Ryan involved with one of those SPACs now. Just about everybody is involved in a SPAC somewhere, somehow.

Kevin: So it’s the liquidity, stupid. They used to say, it’s the economy, stupid, but it’s really the liquidity, stupid right now.

David: It’s the liquidity, stupid. To go public, you don’t even need a company. Does that tell you anything about the excess nature of credit in the system?

Kevin: So this isn’t hope for a blue wave. What we’re seeing is actually just saying, we’ve got this monetary wave.

David: Right. Blankfein said big institutional investors love this. Low interest rates are free money. So yes, the defining factor in the market is not the hope of a blue wave, it’s a fiscal and monetary largesse in the case of either the blue shirts or the red shirts winning, because think about it. Big institutional investors can get along fine. They have flourished in the context of a Democratic administration, they have flourished in the context of a Republican administration.

Kevin: And now interest rates are zero. They want free money.

David: And they want to know, will the liquidity tap remain on, or will the liquidity tap be turned off? That is the only thing that matters to the leveraged speculative community, the big institutional investors Blankfein was talking about.

Kevin: And money doesn’t cost anything. Not right now, not to the big institutions.

David: So put interest rates to near zero, promise to spend trillions to keep them low, maintain an air of crisis related to Covid. Again, it legitimizes any action, whether it is public policy action or a monetary policy action, or fiscal policy. And it gives you carte blanche permissions to spend any amount necessary from the Treasury, and of course, the Fed would act as guarantor, the purchaser of first and last resort. And it’s a very interesting dynamic. But if there is a problem in the system, you name the asset, the Fed names the price.

Kevin: When we were kids we would play musical chairs. Remember? When you were in school, you would play musical chairs, and at some point the music stops and there weren’t enough chairs, and that’s the whole deal. But we’ve been playing musical chairs now for longer than anybody can remember, and the music has not stopped, it has just gotten louder and louder and louder. I wonder if these speculative investors wonder if it will ever happen.

David: We’ve talked so often about the presumption of control and this idea that somehow, whether it is Powell under the Trump administration, or Bernanke under the Obama administration, they’re going to make just the right choice at just the right time to keep these things from happening. And yet, look at the debacles that we have had in 20 years, and the frequency of those significant financial market ruptures. And is Trump going to do less than the Democrats, from a fiscal standpoint? No. Are the red shirts somehow fiscally conservative (laughs)? Look, if you’re still in that small cadre of naïve people that thinks that they are, just check the record. Are the blue shirts afraid of spending someone else’s money, running deficits to spend on pet projects themselves? No. Our two-party system is, in many respects, a one-party system.

Kevin: And it always involves other people’s money.

David: Sure. You have different characters in the cast. They compete for control of the narrative, but the act ends roughly the same. And by the way, there doesn’t end up being the amount of control that is broadcast. Again, it is not as if Jerome Powell is actually capable of suspending the sun, moon and stars. He is not gravity, anti-gravity. He doesn’t have some supernatural powers. Even though you might see him on Time magazine wearing a cape, he’s not actually a super-hero, he’s just a guy.

Kevin: But he can print money, and the municipalities cannot print money. So you have to have, at some point, a day of reckoning for those who are spending in deficit, knowing they can’t pay it back, and they can’t print the money to pay it.

David: This comes back to the fiscal conversation – is it 1.5, is it 1.8, is it 2.2, is it 2.4? And the difference in packages being offered does come down to who is going to support the municipalities. Only the municipalities need to be worried about the money not coming through. But frankly, if you want to do point and counter-point on that, you have an open checkbook. The Fed can move to backstop municipalities. They can remove any of the stress or fretting that might exist amongst fixed income investors. And again, it is important to remember that the Fed’s economic projections assumed another fiscal stimulus. It’s going to come.

Kevin: The way the Democrats and Republicans compete for how money they can spend on this stimulus package shows that it is just one party. If you were to actually see a party exercise discipline, it would probably disgust the people. They wouldn’t be happy about it, they would think, “What are you talking about? Monetary discipline at this point?”

David: You had in the 2018 elections, 31 seats that moved, and those seats are vulnerable coming into this election if you don’t see the money flow. And the Democrats are keenly aware of that. So will there be something that emerges before the election? I think so, because you’re actually talking about constituents between a rock and a hard place in at least 31 locations. Blue wave? I think there is a lot more that is uncertain about the political outcomes, and may serve as a radical surprise. And to the degree that Wall Street starts lining up in favor of a blue wave, they may find, actually, that they’ve lined up on one side of the boat, and that is of great consequence, regardless of how you feel about politics. Anytime you are in the marketplace, lining up on one side of the boat is highly consequential.

Kevin: So any display of discipline, whatsoever, would have huge consequences at this point.

David: Yes. We talked about, last week, being in an age of excess, and there being a sort of disgust with the idea of scarcity, almost a turning up of the nose, a disdain for limits. “You don’t have enough imagination if you haven’t come into the fold in terms of modern monetary theory and what can be done with pro forma budgetary math. You just don’t understand. You just don’t get it.”

Kevin: With all this excess liquidity, the markets are acting like all is well, but there is an indicator there, Dave, that you like to watch that is saying that not everybody thinks that way, or at least they’re hedging their bets.

David: To the degree that you have liquidity available, and you don’t have companies, or specifically, we talked about credit default swaps in the past, that can be an indicator of things that are deteriorating as liquidity is tightening. But what do you do in a context where liquidity is not tightening, liquidity is flowing freely, and yet you have these aberrant indicators like the VIX? The VIX is remaining stubbornly high. This is how you measure the ratio between people buying puts and calls.

Kevin: So betting up or down.

David: Yes. And this is more or less a leveraged speculative bet, either on the long side or the short side. People tend to buy puts to hedge a position, or to speculate on the downside. But that number has not dropped below 25 since August 31st.

Kevin: So that indicates that some people are putting the market at this point, or betting down.

David: Yes. So it’s an aberrant thing, because the whole world is “risk-on” at this point. But the VIX indicates that someone, and it’s likely the big institutional investors, playing with massive dollars, leveraged to the hilt, is still buying the whoops insurance. Whoops, we got it wrong. Whoops, we were a little over-extended. Or whoops, the central planners couldn’t keep it together as tightly as advertised, as much as they broadcast. Whoops, it was actually a confidence game and now we’re on the slide side. So insurance in the form of options, still very expensive. And that is kind of the singular point where you would say everyone is full throttle, we’re going to be fine, except VIX says, “Mmm, still hedging a bet, at least a little bit.”

Kevin: The weather is still nice here in Durango and I see you ride the bike in – you’ve got your motorcycle – and I do notice that you still put leather on even though you say you’re a safe motorcycle driver. Yes, the leather still needs to be there, doesn’t it? And that’s the whoops insurance.

David: It is the whoops insurance, because it’s not just you that can make a mistake, it’s someone else. It could be a distracted driver, or whatever else. And I think, when we speak of a slide, my kids often hear me say, because I do have a motorcycle, you dress for the slide, not the ride. Because everybody goes down at some point, and the question is, do you ride with all your faculties engaged? Do you assume general safety? And you can’t on two wheels. You should assume a war zone is out there. And so you dress for the slide, not the ride. And the markets are actually dressed for the ride, not the slide. It makes for a very messy cleanup when something goes wrong. March comes to mind. That was the most recent. Guess we were dressed the wrong way.

We live in a college town, and every year I see some 18-year-old with an under-developed cerebral cortex flying around on a motorbike, and they’re in shorts, they’re in a t-shirt. I even saw a guy in flip-flops once. And of course you have sunglasses for eye protection. But no helmet, no gloves, no leather jacket. And the ride is glorious, as long as everything goes right.

Kevin: And you brought out that they were 18 years old, because if they were 20, or 22, or 25 or 30, there is a point, like you said, everybody goes down. We all learn from experience. In fact, sometimes that’s the very best thing that can happen to you young is to live through something that might kill you later. You just sort of change.

But let’s go back to the musical chairs things and the 18-year-old riding the motorcycle. If the 18-year-old has never gone down, but he has that engine beneath him, he’s really, at some point, going to either learn the hard way or never even make it through.

Musical chairs is the same thing. We were talking about the music not stopping, just getting louder and louder and louder. And it seems to me that the current confidence in the financial markets is trained. Remember when we read Gonzalez’s book, Deep Survival? He talked about if you repeat something that is very dangerous, without the consequence, you start to believe that will be the way it always is. That is human nature. The problem is, that day is coming when you learn differently.

David: You normalize the danger, and it becomes something that you underestimate. I think this is what Lloyd was getting at in the CNBC interview, because he was basically saying you put free money into the market, and the decisions that you make are different. You husband the resource differently when you have infinite access. That was his word – you husband it differently. Of course you do. And so yes, there is confidence in the financial markets, nothing bad happened last time. How quickly do we move on from March 2020? It was a mere aberration on the path to – what do we have now? Millions, or billions, or trillions. And that is the path toward the American dream.

But I think one of the issues, as we come to November, is there are not too many people on that path, and that factor, more than any other, defined the 2016 election and the surprise that many people experienced. Let’s call them the educated folk who first woke – a different kind of woke – but they woke up to an election outcome that they thought wasn’t even possible.

Kevin: Let’s talk about election outcomes I don’t know that everybody has thought through. Harris/Biden. And I put that in order the way I meant to. Harris/Biden. Amendment 25.

David: The blue wave theory conveniently sets aside the reality of a Harris/Biden vendetta. Not only raising capital gains tax rates, but also corporate income taxes. So you have the first, which is a hit to investor motivations, and could certainly precipitate a post-election pre-January 1st selloff in the market.

Kevin: What does that do to interest rates, which have been unusually low, in fueling this thing?

David: I think, very critically, there is the second point, which is corporate earnings, which would definitely come under the gun with an increase in income taxes. And that, I think, factors in, not just as an end-of-year event, between November whatever, because we don’t have a specific date that we will know who is president, and the inauguration.

Kevin: So they would be targeted with earnings and, at that point, again, my question – interest rates?

David: The Financial Times says, this week, that a blue sweep brings forward a rise in interest rates by at least two years. I read that, and I thought about it and kicked it around, and I thought, as if the financial structure that the world central banks have built could actually take the strain of increasing interest rates. So we have inflation, which they expect to run a little hot, and we have already adjusted expectations there, changed the policy.

So that’s what Wall Street bakes into the blue wave cake, a little bit more inflation, and on that basis, probably a sooner timeframe to an increase in interest rates. But again, look at the backdrop. It’s not like 27 trillion dollars is inconsequential, and that’s just federal debt. We’re not talking about corporate or household debt. The Fed starts a tightening cycle two years ahead of schedule?

Kevin: Can that even happen?

David: Please. No, I don’t think so, because you’re talking about a voluntary tightening of financial conditions. Can you see a non-voluntary tightening of financial conditions? Yes. But a voluntary tightening where it’s orchestrated by the Fed – we could call that the Floyd effect, at least that’s the way it would be experienced for the leveraged speculator – not going to happen. They can’t breathe.

Kevin: Going back to 2016, we looked at the polls, we heard the polls, we talked about it on the Commentary, and the polls just turned out to be plain wrong – I mean, plain wrong. Talk about a surprise. Wait a second! Are the polls, themselves, fake news?

David: I think it is wishful thinking, and please don’t take this as critical, but there is a lot of emotional desperation. There is a sort of a channeling of inner political disgust. Again, you go back to 2016 and the shock that this is not my America – those were the words that I heard from a lot of people. The polls suggested that Hillary was ahead by 10 points, 12 points, 14 points, and that was everyone from ABC, CBS, NBC, Rasmussen, Gallup – it was like a grand sweep. And again, I think we’ve forgotten how wrong the polls were coming into the 2016 election. By the way, Biden is different. He is not going to garner the same levels of dislike that Hillary Clinton did.

But it has to be noted, almost all of the election outcomes have been informed – I wouldn’t say determined – by how a candidate does in the early stages of the primaries. And so, if you look at how Biden did in the early stages of the primaries, if you look at how Harris did in the early stages of the primaries, they performed abysmally. The DNC basically stepped in, chose Biden, and worked through to get him placed. I think this is typical, the DNC coming from a position of arrogance and disconnectedness from their constituencies. Frankly, if you look at Democrats in the hinterland, they wanted a different kind of leadership for a long time.

Kevin: You wonder if they even feel orphaned at this point, because there are probably a lot of Democrats out there who are offended that they are being compared to communists.

David: And you have that expression of discontent within the Democrats that are searching for an identity. The AOC, Bernie Sanders let it burn theory of progress. But I’m thinking more of, when you say orphaned, what comes to mind is the blue collar guy or gal out there, the blue dog Democrats that are a little bit more fiscally conservative. And what are they turned off by? They’re turned off by insider politics, elitism, lack of constraints, and identity politics, frankly, which are beyond the pale, even for many Democrats.

Kevin: What do you think they thought about what Putin said about their own party?

David: I thought it was fascinating. He was talking about Biden, right? I couldn’t believe it from Newsweek of all places, saying that Putin wants to work with Biden, claiming shared values between the Democrats and the communists.

Kevin: He is not that far off.

David: Well, maybe not if he’s talking about the extractive opportunism in the Ukraine. But that is, again, more of a Biden issue, not necessarily a broadly Democrat issue. There are some similarities between those two, as much as similarities or symmetries have been drawn between Trump and Putin, it appears that when Putin looks in the mirror he kind of fancies Biden.

Kevin: So do you think a lot of these voters are going to go in and just say, “I don’t care. I am just voting no for Trump.”

David: I think that’s your best-case scenario, is a no Trump vote. And that is very different, isn’t it, from a yes to some sort of visional leadership? It’s a reluctant vote. It’s not an enthusiastic vote. It’s “you’ve got to do your duty and be loyal to the party on this one because you don’t love, you certainly don’t like, the alternative.” So what does Biden have? He is not campaigning on the economy.

Kevin: Well, can he? Americans still feel they are better off than they were four years ago.

David: Right. Clinton was able to come in and say, “Look, it’s the economy, stupid.” That was the message in the early 1990s.

Kevin: That was Bill Clinton.

David: Yes, the first in the dynasty. Last week you had Gallup surveys which concluded 56% of Americans still say – this was last week – they are better off now than four years ago. And at 56%, that is, just for historical reference points, 12 points higher than a similar poll taken by Gallup when Reagan won 49 states. It is 10 points higher than when Obama was re-elected. So he can’t run on the economy. And they have tried, and actually, the whole closure thing with Covid, I think, was a veiled attempt to basically be able to make the argument, and make it about economics.

Kevin: And running on centrist views. Remember when there was this whole talk of a third way – no, we’re not Democrat, we’re not Republican, we’re centrists. We’re everything.

David: That was, again, going back to the 1990s, Bill Clinton’s big thing. The third way socialism focused on something palatable to everybody who a little bit closer to the middle.

Kevin: Sort of the John McCains of the world.

David: Yes, if you want a Republican version. So Biden can’t bring the hope mantra so persuasively, and somewhat ambiguously pitched by Obama. In that context, on the Obama ticket, Biden was an afterthought as a VP (laughs). What did he bring to the table? The change mandate? What represented change was the first African-American president. That was understood as getting on the right side of history. Biden as VP was sort of an associated accident of that history, where you have a career politician who needs to be matched up with the junior senator from Illinois, who really didn’t have that much experience. So the surprise in 2016 was hidden in plain sight. Change – not the Obama change of 2008, but the change defined in 2016 – was defined in the rust belt. And it was defined by the submerging middle class, because they are desperate for an improved lot in life.

Kevin: So this blue wave that the mainstream media is talking about is really just me looking up, and getting other people to look up. They are looking up and trying to show you something that isn’t there.

David: Narrative management. Mainstream media is all about it. Creating the impression of reality and hoping that it becomes a reality. And this is not unlike what the Fed does to control. And currently the Fed doesn’t have a monopoly on their management. “But it is going to be okay,” is the Fed’s ploy. “We’ve got this under control,” is the Fed’s ploy. “We’re going to tell you we can see the future when we don’t have a crystal ball, but you’re going to believe us anyway.” And you let it become reality. I think the blue wave is something of a political ploy being processed through that 24-hour news cycle.

Kevin: So we’ve only been talking about the executive branch. But there are two other branches of our government, and one of those branches right now is highly unfavorable, according to the polls.

David: Yes. You have the very hot discussion about the judiciary, and we will see how the confirmation hearings go, and what that looks like.

Kevin: I just happened to be thinking of Congress when I said highly unfavorable at this point.

David: Yes, it’s an unfavorable outcome, or a favorable outcome, and as we said a few weeks ago, when Ruth Bader Ginsburg passed away, that redefined the conversation in terms of the election. It was no longer about Covid. It was about the Supreme Court nomination, and that has proven to be pretty accurate. What you’re saying is Congress, and yes, this is actually encouraging to me, because it says to me that there are Americans on both sides of the aisle who are engaged in thinking, and not necessarily just sort of siloed in their own political camp.

I appreciate where we started the conversation today, talking about a move toward tribalism, but in this respect, there is commonality. 17%, according to Gallup, approve of Congress’s job. 80% disapprove of the job Congress is doing. That covers a lot of people. That covers every political stripe. It basically says that the vast majority of Americans look at Congress with disgust. And again, bipartisan disgust when it comes to congressional jobs – that’s encouraging to me. That’s really encouraging to me.

Kevin: Why are we moving into November, from February on into November, and now just finding out that the lockdown might be more damaging than actually the disease, the virus? Covid. C-19. What Trump calls the China virus.

David: In the last week, two significant things have happened there, and of course, this has to do with economics and people’s experience of overall well-being, whether it is mental well-being, economic well-being, not just from a health standpoint, but to rule in on this, to weigh in on it, it does take health practitioners, epidemiologists, etc. So we now have the WHO, the World Health Organization, joining into the conversation, along with 1700 doctors, epidemiologists and research scientists, pleading with politicians to manage Covid more intelligently.

Kevin: A little like you talked about a couple of weeks ago where you find the high-risk groups and do something about it, but the low-risk groups, allow them to earn a living.

David: It can’t be on the basis of a one-size-fits-all economic lockdown. It’s age-specific. That’s got to be tough for somebody who is somewhere between the age of 60 and 70, or above. They say that someone who is 80 years and above has 70 times the risk of a 40-year-old of dying. So where is the risk then? And we already talked about the CDC’s statistics where you have about a 5% rate of mortality if you are 70 years or older. Anything below that and it drops below the single digits, down into the fraction of a fraction of a percent. So does it make sense to be more targeted in defining the risk and in defining how you go about solving it?

Kevin: So focused protection is what you are talking about, from the virus.

David: That’s what the Great Barrington Declaration is about. 1700 doctors signing on and saying it has to be age-specific and risk-specific categories, and that is how they define it – focused protection. The way they start the Barrington Declaration is something like this: “As infectious disease epidemiologists, as public health scientists, we have grave concerns about the damaging physical and mental health impacts of the prevailing Covid-19 policies, and recommend an approach we call focused protection.” The bottom line is that it is risk-based and age-based.

Kevin: This goes back to that 71 million that you were talking about that were pushed into extreme poverty because of the lockdowns.

David: Yes, so we have the unintended consequences of people who are not experiencing the same life that we are in the first world. So if we want to transition toward a virtual classroom we can do that. We can work at home.

Kevin: Not everybody has the ability to Zoom.

David: So it gets to our conversation a few weeks ago – 71 million people globally pushed into extreme poverty, below $1.90 per day, by the lockdown measures. That was Financial Times several weeks ago. Last week Financial Times reports 270 million school-aged children in India damaged by lockdown measures. There’s a carve-out. Of course, you have private, educated, and top government schools in India, it doesn’t matter at all. They easily adapt to a virtual classroom with the only impact being lots of screen time. But that is not so for nearly 270 million under-privileged children in India.

Kevin: Even businesses – there is not an equal distribution of who has been affected. The small businessman right now can’t take the boards out of his windows at this point because he has rules and regulations that keep him from doing business.

David: How do we care? And who do we care about? These are critical questions as we figure out the proper policy measures and how to get them implemented? How do we care in such a way that there aren’t negative unintended consequences? Can we universalize our cure for everyone else? And I’m not talking about a vaccine, I’m just talking about the policy measures. And coming back to politics, yes, I think you can define the small businessperson as being squeezed by lockdown. Are they, potentially, another critical swing voter? You take away someone’s livelihood in sort of the de Blasio or Cuomo style, and I think you’re going to find a bunch of really angry people waiting to express their views at the ballot box. And why wait for the ballot box? Why be silent until then? Because look at the way we have created a social construct. If you express Trump support in any way, you are de facto a racist in the current environment. So what kind of energy do you want to spend in being a Trump supporter, if you are a Trump supporter? None at all in the public field. So what do you end up with? You have a loud voice on one side of the aisle, and you have a silent voice on the other, except, of course, if you are looking at the numbers of people that show up at various rallies.

Kevin: Mostly peaceful – and riot. Right.

David: You can see there is a lot of enthusiasm in terms of the numbers of people that show up for a Trump rally.

Kevin: We have been talking about waves, monetary wave. We talked about what looks to be an artificial blue wave. But it has been predicted since, really, spring of last year that we are going to have a second wave of infections that come up because winter is coming. You just wonder if there is going to be a different political response at this time.

David: Yes, so there is an ebb and flow, when you think of waves, actual real ones, waves and tides. There is the tide coming in, the tide going out. We had the first major issue with Covid, and it has receded. And actually, economic activity has improved, employment numbers have improved. We’re not anywhere back to 2019 numbers, and might not be for many years to come. But you can see a second wave of infections already in motion in Europe, and in select states here in the United States. And of course there is a difference in conversation. Politicians can’t bear to talk about morbidity and death rates. We mentioned the CDC numbers. Death rates have been pretty stable, and as a percentage of cases, declining.

Kevin: Infection rates get more air time. They get more play, because if you do have an agenda, you have to have high rates of something.

David: Well, even if your agenda as a news media is just to sell advertising space, there is more drama involved, because the numbers keeps on getting bigger. So drama relating to infection rates, policy prescriptions – I think they are going to be driven off of those fears. And there is no doubt that Democrats are more risk-averse on this issue. There is no doubt that economic closure is an easier course to take for those of the philosophical bent that minimizes the importance of commerce and free enterprise and prioritizes governmental interventionism. What I find very disingenuous about a lot of Republicans is that they have this view that they are the non-interventionists and the Democrats are the interventionists. And yet, when it comes to monetary policy, whether it is Donald Trump or any of his supporters, guess what you end up with? We have had the most radical forms of monetary interventionism in modern history, and there is no critique of it because circumstantially it is justified.

Kevin: But it’s almost like they’re competing to do it. It is almost like they think that that is what we are calling for.

David: Right. There are some philosophical differences in terms of who comes up with the answers – free enterprise system, an entrepreneurial spirit, or sort of a top-down governmental interventionism, almost dreams of being president Xi. But again, this raises the issues, not of the difference between Republicans and Democrats, but between we, the citizens, us, if you will, and them, broadly categorizing them as the rulers.

I have a hard time seeing a dime’s worth of difference between the Republicans and Democrats. Citizens have been forced, through Covid, to see every version, whether the color is important to you or not, of elitism, and I think this is, again, where differentiation has been lacking in the political sphere, with the net effect being the only real differentiation is between the average voter, the average man and woman, American citizen, and the average politician, who is clearly in a different class.

Kevin: This brings me back to what we have been talking about, actually, for years, but just the last few weeks again – what is the impact on the dollar? That is how we save energy. That’s how we transact. What we’re really talking about – blue wave, no blue wave? Maybe it’s a red wave, who knows? We haven’t even looked at that side of things. But it is a Fed wave, and everyone is relying on the Fed wave. A few weeks ago you talked about the zombification of companies that really should have been allowed to fail. That is step one. Step two is devaluation. The more money you print, the less it is worth. That is just obvious throughout history. The third step would be repression, keeping those interest rates low, artificially, as long as possible. The fourth step keeps coming back to me. Carmen Reinhart, the Chief Economist of the World Bank. She said, a captive audience, getting caught as a captive audience. So it seems to me like we want to continue on this program. We can talk politics all we want. We can’t control the outcome like the press thinks. But the Fed wave is going to do those four things, ultimately, to the dollar.

David: There is sometimes a surprise in conversation, and Sunday night there was one of those surprises. Family dinner. We were settled in, just having a great time, and the topic of conversation comes to heaven and eternity.

Kevin: That’s a good conversation, actually.

David: So my 9-year-old daughter says, “My great fear with living forever would be that I get bit by a zombie, and I live forever in a state where I am neither alive nor dead.”

Kevin: She has zombies on the mind, you know, Dave. We’ve talked about this the last few weeks.

David: (laughs) It’s crazy. Again, it was a surprising conversation, and I think the surprise for us today, if we’re talking about waves, in the end we have the Fed wave continuing to carry all boats higher. There is a singular loser in that, and it is the dollar. So maybe we call this, not the blue wave, but the green wave, because that is our currency color, at least for the time being until we come up with some other monopoly alternative. But we have learned from history, the cost of security is freedom. And what we are learning in terms of the market is that the cost of predictability is the stability of our currency. So whether it is a blue wave, or an orange wave, it is still the Fed tsunami I worry about most.

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