MARKET NEWS / MCALVANY RECAP / MARKET NEWS

Truth and Its Children

MARKET NEWS / MCALVANY RECAP / MARKET NEWS
McAlvany Recap • Jul 17 2023
Truth and Its Children
MPM Posted on July 17, 2023

Telling the truth has a checkered past in terms of how it is received. Some people welcome it. Many do not. Those in the latter group often will do anything to suppress the truth.

This suppression is typically birthed by the need to support a false narrative—a false premise, if you will. If your starting point is in the wrong place and leads to the wrong destination, you need a lot of wrong information to keep people on the path.

The truth concerning the stock market, for example, might be that nearly all stocks, even bad ones, can go up for a time due to investor ignorance, enthusiasm, greed, FOMO, herd dynamics, and loose monetary policy. What you’ll likely hear instead is supposedly sound investing principles such as: stocks always go up over time, the market reflects all available information efficiently, a stock that has gone down sharply is a good buy, and so on. They may not always be wrong, but they’re certainly not always right—and that’s the part that gets you.

A wise investor will respond to the former information much differently than the latter. Emotional choices are not always good ones. The ecstatic and overwhelming choice of Barabbas, for instance, was not likely a boon to the nation of Israel circa AD 30. The Titanic was not truly the safest mode of transport across the Atlantic in 1912. And Dutch tulips were not really worth 15 times the amount a skilled laborer earned in the entire year of 1636.

In saying all this—in saying the truth about the truth, if you will—we are not saying that telling the truth is easy. Certainly it can be (and usually is) easier in the long run, but in the short run it can be brutally hard, even dangerous. People who make a habit of telling the truth to the best of their ability face headwinds that sometimes run to hurricane strength.

Most truth-telling Americans realize that their country is in thrall to a number of false narratives. The lies needed to support them are legion, and truth often seems to be in short supply. But if “wisdom is proved right by all her children,” the wise know that harder truths will always yield a better harvest than easier lies.

This week, David spends some time talking about growing up in the McAlvany household, where he was taught that “the majority is always wrong.” He’ll grant that “always” is likely a bit of hyperbole in this instance, even as he understands that majorities are astonishingly gifted at choosing badly.

To the more basic point, though, he notes that being a contrarian can be a very hard and lonely road. And just because you’re not on the popular road doesn’t mean you’re on the right one. There are lots of wrong choices that are just as contrarian, hard, and lonely as the right one. One of wisdom’s children is getting to the right place. It’s the consequence of making the wise choice of the right road.

If you value truth even when it is out of favor, as it clearly is in our day, spend some time with the content creators below. They go to a lot of trouble to extract the signal from the noise, and give you an accurate picture of what’s happening in the markets and the economy.

Key Takeaways:

  • You have to master yourself before you master the market
  • Re tightening: “That word you keep using; I do not think it means what you think it means.”
  • What do equities and Wile E. Coyote have in common?
  • What you use for money determines how much you can buy

The McAlvany Weekly Commentary: David segues from his discussion of the difficulties in taking the contrarian route to a way in which taking it can benefit a person who does so wisely. He uses a story from his own experience to drive the point home—selling real estate high in one location and buying low in another. He also shares an experience that didn’t turn out so well. Later in the program, he quotes PIMCO Chief Investment Officer Daniel Ivascyn from an interview in the Financial Times. Ivascyn states that, “the market’s too optimistic about central banks and their ability to dodge recession even as they’re battling inflation, both here in the US and Europe.” In that light, he lays out a broad investment strategy to capitalize on the resultant opportunity.

Credit Bubble Bulletin: In response to Wall Street veteran Bob Michele’s contention that, “The considerable central bank tightening is starting to bite hard in the real economy,” Doug counters that, “I’m challenged to find significant evidence Fed policy is ‘starting to bite hard.’ My analytical framework prioritizes financial conditions. Generally, tighter market liquidity conditions presage tighter lending, slower credit growth and weakened demand. Markets lead economic performance—not vice versa. Booming markets generate self-reinforcing liquidity, loose conditions and asset inflation, which work to bolster confidence and boost spending.” He then presents the numbers that prove “market financial conditions have become extraordinarily loose.” His bottom line? “I don’t see inflation risks subsiding until financial conditions tighten.”

Hard Asset Insights: Fellow contrarians might find it difficult to believe that a national bureau can get anything right. This week, though, Morgan cites a study by the National Bureau of Economic Research concluding that monetary policy is important. Proclaims the august assemblage: “Analysis of available policy records suggests that a contractionary monetary shock likely occurred in 2022. Based on the empirical estimates of the effect of previous shocks, one would expect substantial negative impacts on real GDP and inflation in 2023 and 2024.” Morgan adds that, “If given enough time before the wheels fall off, however, markets appear determined to push a FOMO-driven short squeeze back toward highs and potentially beyond. This is a dangerous set-up.” Why? Ask your five-year old. High altitude + no support = Wile E. Coyote’s hard-scrambling hover, then plunge to the valley floor.

Golden Rule Radio: Tory and Miles begin the program this week with a look at the dollar’s recent decline. Despite higher interest rates, it has dipped lower and broken below its recent channel. The hosts note that if the dollar dips below 100, it could lose another five or six points quickly, which could cause both equities and the precious metals to rise in tandem—something that happens only about 25% of the time. Tory provides keen insight into gold’s enduring value by comparing it to the residential real estate market since 1972. There has been some ebb and flow in the ounce-value of the average home, but, unlike the dollar, gold has more than held its own. It takes less than half as much gold to buy a home in 2023 as it did in 1972. More recently, in 2000, if you had $119,000 in cash, you could buy an average home with it, buy gold, or put it in your mattress. If you put it in your mattress, you could now buy a studio apartment in Mayberry. If you put it in gold, you could now buy two average homes—or one very nice one.

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