MARKET NEWS / MCALVANY RECAP / MARKET NEWS

When Fact Meets Fiction, Which Wins?

MARKET NEWS / MCALVANY RECAP / MARKET NEWS
McAlvany Recap • Jul 24 2023
When Fact Meets Fiction, Which Wins?
MPM Posted on July 24, 2023

The Law of Unintended Consequences is often cited in this day and age. America is putting in place new and unprecedented laws, regulations, practices, and social memes, thinking that the entire worth of these innovations can be judged by the intent—or the expressed intent—of those who put them in place.

The people who think this way clearly never studied Newton’s Laws of Motion—or, if they did, perhaps they couldn’t count all the way to three. Newton’s third law is that for every action there is an equal and opposite reaction. And while this is a law of physics, it has clear corollaries in the larger realm. One of those corollaries is the law mentioned in the first sentence of this post.

We could probably retitle the Law of Unintended Consequences “Everything Costs Something.” And we could subtitle it as, “Usually More Than You Think.”

All ideas and actions have a cost. A thief might think he’s getting something for nothing. He isn’t. He pays an incalculable cost in character, reputation, life, and soul. In truth, he pays far more for what he gets than the honest person who merely parts with some cash.

Babies don’t know this. Adults are supposed to. One of parents’ chief responsibilities is to teach this concept so children don’t pay the cost of putting paper clips in electrical outlets or failing to look both ways before crossing the street. Some parents do a better job than others. Some children learn better than others.

Unfortunately, some children never learn not to steal. Some of them become shoplifters, some become white-collar thieves, and some become politicians and central bankers. And the rest of us live well or poorly at least partly because of how active these thieves are and how much they take from us.

Those at the top enact laws to redistribute wealth, they protect certain industries or companies from competition, they start cold wars or hot wars, they create fiat currencies that are brought into being through debt, they debase those currencies through inflation and political interference, and much more. These things all involve unjust takings from the population by the political and banking establishments. And unjust taking is theft.

What we are seeing in the economies of America and the world are the unintended consequences of theft on a grand scale. We are about to find out what the true cost of such massive larceny is. The best guesses of the best analysts say it is likely to be immense. Most people whose moral compasses still point north have a sinking feeling in the pit of their stomach that those analysts are right.

Why? Because in life as in physics, reactions tend to be equal and opposite to actions—and the actions taken to get us here have been staggeringly massive. Trillions of dollars in cost, culture-changing in scope, and character-degrading in nature. Many people shudder when they contemplate what the consequences of such things will be.

Whatever the cost, it is being imposed slowly—with plenty of time to correct course. Will we do so? Among the decision makers able to change our course, there seems to be little will to start doing things wisely.

In the meantime, the McAlvany analysts continue to chronicle those decision makers’ actions; put them into historical perspective; apply the best theory, principles, and logic to determine the likely outcomes of their policies; and tell you how to protect yourself and prosper no matter what they do. Click on any of the links below for details.

Key Takeaways:

  • Interest rates are better than tea leaves for predicting the future
  • What to think when cause and effect are living apart
  • The danger that lurks when optimism is du rigueur
  • Orderly markets are good

The McAlvany Weekly Commentary: David and Kevin discuss current events in light of a trend in interest rates that is extremely influential. We have had a trend of decreasing rates for 40 years now, but it’s reversing. So as poor as redistribution policies function in good times, they are now forced to do their dirty work in hard times (at least as far as interest rates are concerned). “Bidenomics, with an existential appeal for planet saving initiatives, is going to require trillions of dollars and will have to be financed. And it’s not going to be financed at lower costs. So keep in mind, if the math is bad today, it only gets worse tomorrow.” The hosts also discuss rising energy costs, the book Ideas Have Consequences (Everything Costs Something), and the new era of big government.

Credit Bubble Bulletin: This week Doug applies Milton Friedman’s “long and variable lags” analysis to both current and historical developments. You can see from the pertinent detail how beneficial it is to have an analyst who has been dissecting market data for several decades. Doug also looks at the Fed and its communication methods since the 1970s, going from no-speak to Greenspeak to clear-speak. And he summarizes recent economic developments thusly: “Apparently, this tightening cycle is about to wrap up without a meaningful tightening of financial conditions. Everyone is okay with it. Market analysts see new record highs in the offing, while many economists now view a soft-landing as a worst-case scenario. I doubt it’s going to be that easy. I believe actual tightening is both necessary and inevitable. ‘Immaculate disinflation’ has similar analytical underpinnings as ‘transitory’ inflation and Bernanke’s pre-GFC ‘global savings glut’ thesis.” This clearly is penetrating analysis. Don’t miss it.

Hard Asset Insights: Morgan notes the melodious lullaby singing the goldilocks market to sleep. Apparently investors forget that the lover of “just right” was awakened by bears. Given the bearish factors approaching the market, which he lists ominously, Morgan sees a similar future for somnolent investors. “Remember,” he notes, “measures of market complacency and sentiment are almost always contrary indicators. Euphoric optimism prevails at market peaks, and pervasive pessimism reigns at market bottoms. As Warren Buffet famously said, ‘be fearful when others are greedy, and greedy when others are fearful.’ ” And right now others are greedy. The surveys of market sentiment, also chronicled in this week’s missive, are overwhelmingly sanguine about the future of equities. If your eyelids, too, are feeling a little heavy, don’t miss this wake-up call.

Golden Rule Radio: Miles welcomes Rob back to the program, and the hosts look first at the out-of-control spending by the U.S. government and the fact that 100% of tax revenues are now going to payment of the interest on the debt and entitlement programs. Nothing remains to actually run the government. In that light, and given that the government seems intent not only to continue overspending but to increase its rate of spending, things look bleak for the dollar and very good for precious metals. However, the hosts also provide an exchange that explains many of their comments during their weekly analysis. One might expect them to desire a meteoric rise in the precious metals, but Miles notes that, “One of my big fears in any market is I don’t like runaway markets. I like healthy, happy markets. I’m a gold owner, I want gold to go up. I want my stock to go up, I want my house to go up. I want all my assets to make me money.” And Rob continues the thought, “On a logical progression, not a moonshot”—with which Miles instantly concurs. Asset appreciation is good, but in an orderly and logical way, not a panic- or mania-induced way.

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