A Residue of Problems

The desire to go into an office has been compromised.

I like to listen to a variety of podcasts, especially on my walks, and sometimes there are periods where none of the newer ones interest me much, and other times a bunch of them do (and I have about 1,000 interviews in my podcast queue, most of which I will never get to.)

Recently, there were more than a few that piqued my interest (including a few from Simplify’s Mike Green and Harley Bassman, as interviewers, so shout out to them.)

Included below, in no particular order, are the thoughts of Andy Constan, Jeffrey Kleintop, Melody Wright, Doomberg, Jeff Currie, William White, Danielle DiMartino Booth, Ethan Penner, and a number of others.

I know you’re probably not going to listen to all of the interviews I describe below, but maybe you will find one or two rewarding. Also, while transcripts are useful, you don’t get the full experience just by reading - watching and/or listening provides far more nuance.

Believe it or not, finding, listening to, transcribing, and thinking about these interviews - with very intelligent people on complex subjects - is not an easy ‘job’, so this post is just for paid subscribers, who I appreciate.

(I appreciate non-paid subscribers too, which is why there is a ton of free stuff on my Substack, especially the earlier posts. When I remember, I also try to go through and take the paywall off older, paid posts, fyi.)

Anyway, enjoy.

Andy Constan, CEO/CIO at Damped Spring Advisors

"Are we burdening our future with debt? Maybe, but really what we are burdening our future with is inflation. That’s the thing I think is a hidden tax on our future. It’s not like we’re gonna somehow default, it’s just that our future dollars are going to buy less stuff."

As Ray Dalio explains, “Think about it. If you own a bond, you've got a claim on money, but the claims are too much...You're either not gonna get back that money in full, or you're going to get back money that's worth less, because they print the money."

This is a recurring theme of mine - inflation is a form of regressive default.

Felix Somary put it well: “…state bankruptcy is a one-time surgical intervention, while inflation is a permanent poisoning of the very bloodstream of a society.”

Better to be honest, and face up to our profligacy, rather than to try to hide it via the most regressive tax.

---

Jeffrey Kleintop

Managing director, chief global investment strategist for Charles Schwab & Co.

I guess I have a reputation as someone who pushes to find the truth in data. Often, I find, in maybe nontraditional measures, I find more comfort in things that just make sense to me. Like the downturn that’s currently indicated in official manufacturing and trade data. Some of that’s kind of abstract.

I find comfort looking at the plunging demand for cardboard boxes. I’ve been referring to this as a cardboard box recession because things that are manufactured and shipped tend to go in a box and because demand for corrugated fiberboard, which is what most cardboard boxes are made from, has fallen just like it did in past recession. So, literally, cardboard boxes are in a recession…

You don’t have to rely on official sources for data. Those are helpful, but you can often find it in things that just make sense.

I loved the above comments, because I regularly see government data reported that doesn’t seem to match the reality I see. The CPI numbers, for example, or the employment reports, which I have not researched much, but others have dissected. Sometimes non-narrative data is enlightening.

Then again…

Fair enough. Notice how words like “hokey” are never applied to nonsense government data, like the BLS claiming car price CPI was flat for 25 years, as I’ve noted several times.

---

My research “process” is more akin to Marc Cohodes, who told a couple young analysts, “You guys dig into all that stuff, and you get all sorts of data - I just like try to back-up, and go for a walk and just start to think..."

Melody Wright is one of those people who are taking a walk, so to speak, and doing bottom-up research, in this case on the housing market.

She doesn’t simply accept whatever the NAR or Zillow says reality is, and I like that. Plus, she’s seen this movie before, when so many have not.

Here’s a recent interview with Wright.

Doomberg

“The fascination with wind and solar, we believe, is because they know it won’t work. They don’t want it to work. If they wanted it to work, we’d be doing nuclear.”

“The philosophical arc of the anti-nuclear movement is a deeply Malthusian philosophy, where the horror that they were trying to avoid is precisely handing to the masses cheap, abundant, carbon-free power, because that - in their minds - would then create demand for resources that would destroy the planet…Nuclear had to be opposed precisely because it solves the problem that solar and wind are meant to solve, which they can’t…”

Club of Rome Eugenicists like Dennis Meadows are quite clear on their goals:

Never forget:

The scientific rationales that drove killer doctors at Auschwitz were first concocted on Long Island at the Carnegie Institution’s eugenic enterprise at Cold Spring Harbor. You will see that during the prewar Hitler regime, the Carnegie Institution, through its Cold Spring Harbor complex, enthusiastically propagandized for the Nazi regime and even distributed anti-Semitic Nazi Party films to American high schools. And you will see the links between the Rockefeller Foundation’s massive financial grants and the German scientific establishment that began the eugenic programs that were finished by Mengele at Auschwitz.

Only after the truth about Nazi extermination became known did the American eugenics movement fade. American eugenic institutions rushed to change their names from eugenics to genetics. With its new identity, the remnant eugenics movement reinvented itself and helped establish the modem, enlightened human genetic revolution. Although the rhetoric and the organizational names had changed, the laws and mindsets were left in place. So for decades after Nuremberg labeled eugenic methods genocide and crimes against humanity, America continued to forcibly sterilize and prohibit eugenically undesirable marriages.

- Edwin Black, War Against The Weak

Beware of who you listen to
Beware of what you believe
Ain't nothing I can do to you
To make you love

- Al Green

---

• "If they found uranium today and called it something else other than nuclear - call it elemental power - they would crown this the Holy Grail, and there would be a massive deployment with ESG backing beyond belief..." - Vincent Daniel quoting Josh Wolfe

• "If you want to kill off coal…build natural gas pipelines. You don’t block them. You certainly don’t destroy them. And if you want to kill off natural gas, build more nuclear." - Tom Bachrach with Grant Williams

• "Look at Germany. No one spent more money than Germany on wind and solar. They're burning coal and wood. It's not different than what they did in the 16th century." - Adam Rozencwajg

Commodities in an Age of Scarcity

Link

• “The basic idea is what does energy transition mean? Um, seems to imply that we're going from something - presumably fossil fuels - into something else - renewables - and we're going to all do this by 2050, and there's really no part of that that I think is either sensible, or on track to happen.” - Arjun Merti, Veriten

• “My strong view is that climate is a problem, and it's going to kill all of us unless we deal with it.” - Charlie McGarraugh, Altis Partners

McGarraugh gives the common argument that low rates are necessary to get things done:

The higher cost of capital is suppressing the price signal to tell the market do the thing that actually needs to be done, right? So again the problem is when rates are this high, you can't think about the future, right? You can't see the hand you know two meters in front of your face, you can only see the hand six inches in front of your face, and the more that they raise the cost of capital, the less people can think about anything other than other than, like, the next time-step, right, and so I think that we're ending up with an economy, and, you know, global behavior on the supply side that is like inimical to the long-term strategic interest of planet Earth, of global economic Justice, and it all comes down to two things: Foster Innovation and Build Supply, and I think they're, yeah, and like I agree the market should decide on which technologies to deploy, but the point is you should have a super high velocity in capital formation in order to allow that, and our our policy makers have decided that's the exact opposite of what they want.

They're telling everybody, you know, every rich person with money please, here's 5.5%, don't do anything with it, because we don't want anything to happen, right? That's, uh, that's going to, you know, break a lot of things, and I, you know, I think they'll feel pretty bad in retrospect for focusing too much on consumption and not enough on investment.

- Charlie McGarraugh

Jeff Currie comes in at this point and nails it: “The way you get capex cycles is really high interest rates.”

One of the points I like to make though is - the higher interest - people say, if you're forecasting this capex cycle will it not happen because of, um, the higher 5.25%, 5.5% interest rates the answer is, no! The way you get capex cycles is really high interest rates.

Why? Because higher interest rates kill off financial returns, and they make physical returns look fabulous, and that's why you're going to see - you already see it in the US - capex is going up, that's why I'm - you ask me I'm just so confident in this story, it’s because historically, you look at a capex cycle and interest rate cycles, they sit on top of one another. They're one and the same, because - think about this - as you know, as interest rates go higher and higher, do long duration Investments look attractive? Absolutely not, you move to the immediate. That's what I mean by inflation/duration tradeoff.

When the inflation is high, it's telling you go invest, your interest rates rise, that kills off investment in the long duration, and forces you into the today, and everything from net zero 2050 to green hydrogen, crypto, Nvidia is the real deal because it actually makes something today, but I want to think about, you know, the rest of those non-profitable tech. They're just like green hydrogen, and so we were focused on these things way off into the future, now with the higher interest rates we got to focus on the today.

Reminded me of David Einhorn in May 2020:

“High real interest rates are the sign of a strong economy. They reflect attractive investment opportunities that can earn attractive returns. Zero (or negative) real interest rates reflect a weak economy with poor investment opportunities, and difficulty servicing its debts.”

And there’s this, from an excellent review of the excellent Edward Chancellor book, The Price of Time:

"Chancellor...does devote significant parts of his book to documenting how unnaturally low interest rates work paradoxically to increase inequality and thus social instability."

Jeff Currie later sums up reality

The power of oil, now that we look at it, is just magnificently powerful, that CH bond…here’s a stat that you need to take home: the power of millions of years of taking plankton and rotting it, and turning it into oil, is that when you take a Tesla and a Mercedes, an internal combustion engine car, and you park them side by side, no fuel, no battery, they weigh the same. Now let's fill up the Mercedes, it adds in 30 kilos. Now let's put the battery onto the the Tesla. You just added 2,000 kilos of weight.

Why are you driving around 2,000 kilos of metal - you're trying to replicate what Mother Nature does.

So when we think about, you know - the reason why I'm anti EV - find another way to get from point A to point B other than driving 2,000 kilos of metal around. It's not efficient, and it will never get that way, because that that carbon-hydrogen bond sits at the center of what makes planet Earth planet Earth.

William White Makes the Case for Scarcity

Link

White is one of the few prominent economists who I think understands the severe problems that reckless monetary policy this century has created. I have quoted him a number of times.

You had this this long period of time, it seems to me, where you had positive supply-side shocks, and essentially negative demand-side shocks - all of this relative to the previous 30 or 40 years or whatever. The upshot of it was increasing disinflationary forces, and interest rates that were a lot lower than they might otherwise have been, through the actions of central banks.

As I said right at the beginning of my comments, I think that that whole era of easy money has left a residue of problems, not only having to do with financial instability, but potential fiscal unsustainability, that I think are going to haunt us for a long period of time now all of that stuff gone into reverse.

White’s comments below are very important

On the Lehman Brothers thing, I guess my sense of it - a lot of people want to talk just about the event, right, the failure of Leman brothers, and it needn't have happened, okay. There's all this talk about what Paulson did, his interpretation of the law, and how much politics was involved, but the basic message was it happened, it took down all those other firms with it, it led to the great financial contraction, both in the state and elsewhere, and it was a terrible mistake.

My reaction to the whole thing is totally different. I think the whole history - I mean this goes back to Alexander Hamilton - the whole history really has been extension of the safety net. Every time something starts to look dangerous, the Fed comes in, the government comes in, and extends the safety net, and Lehman was actually a kind of exception to the general rule.

You think about what happened with SVB, right, with a sort of implicit guarantee of all deposits, and no haircuts, and the collateral that the FED is taking, so the we've got a long history here of the safety net just getting bigger and bigger, and my worry about that is one, it creates enormous amounts of moral hazard, and two, I think it's politically reckless.

I mean I don't know in how many countries where the political reaction to bailing out the bankers has been extraordinarily negative, against a backdrop of widening inequality, of which we haven't spoken thus far, okay? So this this sort of stuff has big political implications as well.

Lastly, I worry about contingent liabilities to the state, as being a contingent increase in the deficit, in the stock of debt, at a time when it's already looking like it's getting pretty close to being out of control to begin with.

So all of this safety net stuff like really worries me, to the point where I guess I've been writing stuff that - while not giving explicit support to the suggestion we should move to an entirely different narrow money regime - I'm certainly prepared to say that the faults of the current system, the way we operate it, monetary policy, regulatory policy, and safety net policy, that the way we operate it, its faults are so great that it is worth thinking about alternatives, and we should be doing that far more than we are, because every time we have a problem, all we've done is we've done more of the same and still more of the same in reaction to it, and I think its digging the whole deeper and deeper.

Fireside Chat with Danielle DiMartino Booth

Link

I was always a big fan of Stanley Fischer, who came out of retirement to make sure that Janet Yellen didn't break the financial system when she was appointed at the Fed - which is a very real risk - and now she runs the Treasury Department - just tread lightly.

He came out of retirement, and the first question he ever asked at his first FOMC meeting was why don't you use the headline CPI? He asked that of the staff, and you know, one brave, intrepid staffer raised his hand in the back of the room at the Eccles building and he said, “Well, if we used headline CPI all of our models would break. We wouldn't be able to conduct QE forever.”

So they have to stick to a measure of inflation that is internally known as as fallacious.

As Mervyn King said, “If you look at the computer models, which not just the bank of England, but other central banks use, whatever you do to monetary policy, inflation always comes back to 2%. Why does it do that? Because the model says it has to..."

• Jocko Unraveling 38: The Administration of Savagery I posted that “I found this to be a thoughtful discussion of current events. If you disagree, that's ok.” As far as I know, I’ve only received positive comments, which, considering the subject matter, was slightly comforting.

• IRAN’S ROLE IN THE HAMAS ATTACKS & IMPLICATIONS FOR THE UNITED STATES | KAMRAN BOKHARI Hidden Forces is one of the best podcasts around. Demetri’s topics are typically so complex one quip can’t do them justice.

• “We're totally lacking in a coherent strategy for American national security. We're constantly reacting to situations, and then you get a bunch of idiots who always want to go bomb something..." - Sam Faddis Solid interview.

• Greg Weldon: The Perfect Geopolitical Storm I enjoy Weldon because he’s a veteran who covers it all, and who has seen it all.

The Father of CMBS Talks Origin Stories, Great Recession and Today's Distress

Ethan Penner

“One of the insights that I’ve had recently, and I was reflecting on it with somebody, is this notion of fun, right? People want to have fun, and work is where people spend a lot of their waking time, and if work’s not fun, probably life’s not fun, because life, to a very large extent, is comprised of work. So if you’re not enjoying the social interactions and your time at work, probably you’re not having too much fun in life, right?

Well, the working world that I grew up in is very different than the working world today, ok? The freedoms to say what you want - people were a little more thick-skinned back then - and it was like a party. Going to work was literally like a party.

You know if you go to a bar today, that same kind of freedom to say what you want, and not get punished for it, is kind of reminiscent of what life in an office was like, and people had fun…I think that one of the inadvertent and perhaps unforeseen consequences of sucking the fun out of work, over the last 25 years I‘ve seen happen, is that the desire to go into an office has been compromised, right?

Your generation…probably can’t imagine, but in my generation - like in my company, on Sunday nights, very few people slept Sunday nights. I used to not sleep Sunday nights because I was so excited to come to work. One day I was kind of blurry-eyed on a Monday morning meeting, and I had everyone working for me at Nomura, and I said something like “I didn’t sleep much last night, in fact I rarely sleep much on Sunday nights because I’m too excited about work…and almost everyone kind of said, “wow, we have the same experience.’ I realized work is so much fun, that we couldn’t wait to get to work on Monday, we had that nervous energy that kept us from sleeping well Sunday night. I don’t think that’s the case any more today. I just don’t think people are excited to come to the office any more, because it’s a lot less fun, and I think that plays a part in this office demand.”

I could relate to Penner’s comments.

UFO Disclosure Overview

These guys have seen this movie before.

In other words, they’re not buying that the government suddenly wants to reveal little green men.

A couple quotes I noted:

• “The audience for this is not you and me. The audience for this is worldwide, and especially people in other countries.”

• “What could be such a deep secret that they need to keep under wraps? I don’t think that “aliens” are that big of an ontological shock, compared to what might truly lie behind the phenomenon, which is a complete reworking of our understanding of reality, and that seems to me like something that you would have to keep under wraps...”

Jan. 24, 2002

Art Bell: "You have to be absolutely convinced, John...that our government is really well aware that these things are going on..."

John Keel: "Yeah, I think that's been the case for a very long time, and I would suspect that they're as baffled as we are."

Again, I only endorse what I quote, and even then…