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January 16, 2022 | Year of the Bookends

If you are a booklover like me, you probably have many shelves. On some of those shelves you probably have bookends holding the books in place. They come in opposing pairs—similar but reversed. What if the COVID-era economy has bookends? I think that may be what’s happening. If you think of 2020 as the left […]

January 9, 2022 | A Path-Dependent Year—WWJD

Twenty-two years of tradition dictate I begin the new year by forecasting what lies ahead. Unfortunately, the future is never really knowable. “Forecast” is a polite synonym for “guess.” The better ones are informed guesses, but still inherently uncertain. The coming year is particularly uncertain. The economy could be wildly different based on how certain […]

December 25, 2021 | Coming to America

This week is a little bit different than your usual Thoughts from the Frontline. It is Christmas Day as this is sent out, so not the time to ramble on about inflation and the markets. Instead I’ll share a story from my good friend Vitaliy Katsenelson. He immigrated to the US with his family from […]

December 19, 2021 | Inflation by the Numbers

Milton Friedman famously said inflation is “always and everywhere a monetary phenomenon.” He was right but that short statement doesn’t fully explain how inflation works. It has other causes, too. The period in which he did his most famous research showed inflation was clearly a monetary phenomenon, but I’m not sure he would make the […]

December 12, 2021 | What Really Caused Inflation

You won’t be surprised to know I disagree with recent Federal Reserve policy choices. The Fed’s future choices are more important, though. Debating what they should do is one thing. Anticipating what they will do is critical. Today we’ll “war game” what the Fed is facing as it wrestles with inflation, growth, employment, and political […]

December 5, 2021 | Capital Excess

Why do we invest? Everyone has their reasons, but funding retirement may be the most common one. Whenever the time comes, we want to relax in comfort and security. Yet this whole “retirement” idea is really quite new. For most of human history, almost everyone worked as long as they physically could, then expired soon […]

November 28, 2021 | Worth a Thousand Words

Happy Thanksgiving! I hope everyone had a good holiday. I’m writing this issue early in the week while enroute to join family in Dallas. Today will be different and I hope you like it.   The charts and comments below are drawn from the “Clips That Matter” feature of our Over My Shoulder service. Because […]

November 21, 2021 | Shortages Are Relative

n some simplistic economic theories, shortages never happen. Supply and demand for any particular good are always perfectly balanced in a given time and place. If you can’t get what you demand at that moment, you pay a higher price or you demand something else. But that’s theory. The real world doesn’t respond instantly, so […]

November 14, 2021 | Live from New York, Etc.

I am writing in the middle of a whirlwind week in New York. We are going to discuss what I’m learning, some takeaways from the conversations I’ve had, changes in my personal portfolio, and thoughts around the topic of the day: inflation. As well as a few random things that I have read this week. […]

November 7, 2021 | Energy Complexity

  If I had to describe my last 500 letters in one word, it would be “complexity.” The older I get, the more I realize problems I once thought had reasonably straightforward solutions are, in fact, hideously complicated. That doesn’t make them unsolvable but it reduces the odds they will be. Often we start with […]

October 31, 2021 | Trick or Treat Economy

To Jerome Powell and the Fed: It’s a lesson too late for the learning, Made of sand, made of sand. In the wink of an eye, prices are rising In your hand, by your hand. Are you going away with no word of farewell, Will you leave your inflation behind? You should have tightened sooner, […]

October 24, 2021 | When Tools Stop Working

Because I believe in the division of labor, I rarely use hand tools today. In the ‘80s and ‘90s, I had two 4 x 8 pegboards on my garage wall full of tools along with my large Craftsman toolbox. I had the right tool for every job around the car, house, and yard. I worked […]

October 17, 2021 | Logistical Sandpiles

At the risk of overusing a favorite metaphor, today we’ll talk about sandpiles. My past sandpile stories focused on financial crises. The same principle holds in any complex system, though. Everything works until suddenly it doesn’t. As Minsky said, stability breeds instability. Then one additional grain of sand triggers a collapse. Today’s financial system is […]

October 10, 2021 | China’s Gilded Age Is Over

Historical comparisons are always risky. This is particularly so when comparing different eras in vastly different countries like the US and China. Similarities can actually obscure more important differences. Nevertheless, familiar knowledge can help build a framework for understanding. Obviously, present-day China is radically unlike any point in US history. But with that caveat, it […]

October 3, 2021 | Xi’s Changing Plan

Six months ago, few Americans had heard of Evergrande. Now many worry this Chinese property developer’s downfall will start an economically devastating chain reaction. They’re right about the chain reaction part, but I don’t think it will “devastate” anyone outside China (unless they have business there). Nonetheless, this episode exposes some other China issues worth […]

September 26, 2021 | What Could Go Wrong?

I have written several letters on the theme that the best investment posture is cautious optimism. Pessimism and bearishness never get you in the game, while untamed optimism means that at some point, you’ll have a serious setback. The cautiously optimistic investor asks both, “What could go wrong?” and “What could go right?” Dave Portnoy […]

September 19, 2021 | Inflation: More Transitory than Expected

If the inflation numbers leave you scratching your head, join the club. The August data was especially perplexing. The Producer Price Index came in hot, up 8.3% in the last year, inviting 1970s comparisons. Obviously, our current situation is different in many ways. But so were the 1970s, at first. That was last Friday. On […]

September 12, 2021 | The Return of Stagflation

I have been writing this letter for 22 years. Sometimes I look into the future and other times merely try to explain the present. Today I’m going to look at several possible futures. There are forces at work in both Congress and the Federal Reserve that could take us down radically different paths. There are […]

September 5, 2021 | Human Capital Losses

Remember math class? Let me give you a quick refresher. In the equation 3 x 5 = 15, the 3 and 5 are factors, and 15 is the product. You can’t have a product without factors. In economics we talk about “factors of production.” If you want to produce something, you need certain factors of […]

August 29, 2021 | Perfect Storms

Having been Puerto Rico residents for almost three years now, Shane and I have learned a few things about living in the tropics. In Dallas, we didn’t often think about hurricanes, though we did have tornadoes and severe thunderstorms. Ditto for earthquakes. North Texas is pretty stable, geologically speaking. Now hurricanes and earthquakes are part […]

August 22, 2021 | Buy Businesses, Not Stocks

I write this letter on my way home from Steamboat Springs, Colorado, where I spoke to the fascinating “GoBundance” group of mostly young, successful, enthusiastic entrepreneurs. Before that I was in Grand Lake Stream, Maine, for the Camp Kotok economics/fishing retreat. I’ll have some details for you later. Today we will look back a few […]

August 15, 2021 | Ubiquity, Complexity, and Sandpiles

Change happens quickly and, often, unpredictably. And as we will see, the unpredictable part is actually a mathematical principle. As in the Hemingway quote above, not just bankruptcy but change also happens slowly and then, seemingly, all at once. It’s time passing without change that causes the worst problems, including some historic economic catastrophes. It turns out […]

August 8, 2021 | COVID Consumer Headache

If you look just at 2021, it seems the US economy is tearing higher. Real GDP grew an annualized +6.5% in the second quarter, the Commerce Department estimated last week. This follows a similar +6.3% first quarter, and a pandemic-interrupted 2020 that turned out not so bad in the end. The July unemployment report showed […]

August 1, 2021 | Policy Errors Have Consequences

“T.S. Eliot once wrote, ‘Only those who risk going too far can possibly find out how far one can go.’ It seems the US financial system is bound and determined to find out.” —John Hussman, July 29, 2021 “If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive […]

July 25, 2021 | Federal Reserve Folly

Great news: The US economy is officially out of recession. We know this because the National Bureau of Economic Research’s official recession-calling committee said so this week. The economy has been in an expansion phase since last April, making this the shortest recession on record at only two months. The NBER committee always makes these […]

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