The real bond kings and queens sit on the Federal Reserve throne

Cash has been trash for years but soon it may be the only haven for investors

Bill Gross 

Current Fed chair Jay Powell, top row, centre, with, clockwise from left, former chairs Janet Yellen, Ben Bernanke, G William Miller, Paul Volcker and Alan Greenspan © FT montage; Bloomberg; Corbis, AFP, Hulton Archive, Getty

Let me be honest. 

The only bond kings and queens over the past half-century since credit was unleashed from its gold standard in the early 1970s have been the US Federal Reserve chairs.

Sure, there were lauded economists Henry Kaufman and Albert Wojnilower during the frantic end days of double-digit inflation in the early 1980s but they were consiglieres egging on clients to avoid long bonds and then somewhat belatedly issuing an all-clear.

There never has been an investor that could move bond markets with a large enough wallet to make a difference. 

The Fed chair with the ammunition of the global currency has been sitting on the monetary throne for the past 50 years.

And now it is Jay Powell — well meaning I’m sure, but bombarded with unique pandemic-related circumstances that make me wonder whether he has changed his conservative clothes and unleashed the potential for chaotic future economic and market outcomes.

Granted, he is conjoined now more than ever with the Treasury and forced to accommodate peacetime deficits of unimaginable size. 

That these fiscal and monetary monarchs have logical intentions is not in doubt — a return to a pre-coronavirus economy of 3 per cent real growth and 2 per cent inflation is their goal. 

Still, how does Powell (and Washington) get there, and for how long do they keep their “pedal to the metal”?

I suspect that $5tn spending programmes and the Fed’s current package of near zero per cent short-term rates and $120bn of monthly bond buying will move growth, inflation and financial markets far beyond reasonable targets that ultimately will jeopardise post-Covid-19 normals.

Even enthusiasts of the Fed’s policy must wonder whether hundreds of cryptocurrencies or a boom in special purpose acquisition vehicles are the result of continuing financial innovation or the product of cheap and plentiful credit demanded by deficit spending and an accommodating Fed chair.

Powell will not even acknowledge asking the question about asking the question until Covid is more under control and employment returns to historical norms. 

Yet unemployment may never return to 4 per cent, given the radical changes in working from home and Zoom-like technological shifts.

What is Powell’s new Nairu? 

The Fed’s historical model for the “non-accelerating inflation rate of unemployment” cannot be a reliable guide for future policy rate changes. 

And how long can the Treasury continue to require near-costless Fed financing for $2tn, $3tn and $4tn deficits without sinking the dollar? 

In a historical gold-standard world, Fort Knox would have been emptied long ago, implying the bankruptcy of the world’s reserve currency.

Many observers wonder how Treasuries and other global sovereigns can trade at yields that are so low, and in some cases negative.

Five-year US Treasuries currently yield just 0.80 per cent, not much in a world where inflation expectations over the same period are above 2.5 per cent. 

That is reflected in the negative real yields, which have the effects of inflation stripped out. 

Five-year US inflation protected bonds now trade at a yield close to minus 2 per cent.

Part of the explanation lies with the less attractive yield on local sovereign debt for foreign institutions (minus 0.5 per cent in Germany, for instance).

Even US investors, however, believe that a 10-year Treasury yielding 1.65 per cent can earn a total return of 2.40 per cent or more by capturing the rising price of the bond as it approaches its maturity date. 

And then there’s the Fed buying more than $1tn Treasuries a year. 

No wonder the 10-year Treasury rests illegitimately at 1.65 per cent.

Such speculations, however, are dependent upon the stability of the dollar and the consistency of Powell’s vow to keep short rates unchanged for the foreseeable future. 

At some point in the next few months, hopes for this will probably be disappointed as inflationary pressures pose increasing price risks to Treasuries and stocks too.

The Fed cannot for long continue to maintain current policy rates and expand its own balance sheet and therefore private bank reserves at a $120bn monthly pace.

Ten-year Treasuries morphed into the “risk” asset category several years ago. 

Stocks with valuations supported by low yields have entered the same category now, no matter the growth potential for 2021 and 2022. 

Cash has been trash for years but soon it may be the only haven for investors sated beyond reasonable expectations of perpetually low yields and supportive bond kings and queens.

The writer is a philanthropist and co-founder of Pimco. He was also fund manager at Janus Henderson Investors from 2014 until his retirement in 2019 


By Egon von Greyerz

“The scholar does not consider gold and jade to be precious treasures, but loyalty and good faith.” 

– Confucius

This article will discuss gold’s growing importance as the principal protector of wealth and also that the coming price evolution of gold will be dazzling as it reaches heights that no one can imagine.

But first let us observe Confucius’ words at the beginning of the article. 

There are many real values that are much more precious than wealth or gold. 

Loyalty and good faith are clearly two of them. 

Also as I have many times stated, some of the best things in life are free, like family, close friends, nature, music, books and many more….

But with the risks and problems that are now facing the world, it is also our responsibility to protect our family and assist our friends in whatever way we can.


There are two principal risks that need our attention:

- Systemic Risk and Currency Risk

These two risks are totally interrelated.

The systemic risk arises as a result of a 100+ year period (since the Fed was created in 1913) of deficit spending and debt explosion.

And since Nixon closed the gold window in 1971, things have got a lot worse. 

Debts and deficits have gone exponential and the fake GDP expansion could only be achieved with the creation of fake money fabricated by central and commercial banks.

All this money was created out of thin air.

No one needed to work one hour for it and nobody needed to produce any goods or services against it. 

And today not even a printing press is needed. All that is required is pushing a button on a computer and trillions of dollars, euros etc just appear out of nothing.


This is the biggest Hocus-Pocus scheme ever produced in history.

To further deceive the people, the so called experts have come up with the name MMT (Modern Monetary Theory).

When you need to deceive the people, you invent expressions which sound very fancy and creative like MMT or QE (Quantitative Easing). 

Both these two expressions mean forging money but that would clearly be too obvious. 

Much better to hide behind fancy words or a theory which no one understands, not even the inventors.

Is it possible that credit growth could be healthy for the economy?

Yes at certain times but not if you constantly need $3-5 of credit to create $1 of GDP.

And certainly not if you grow debt 31X and tax revenue only 6X which has been the case since Reagan became President in 1981.

And most definitively not if the Federal debt can only be financed at zero or negative interest rates. 

In the long term Investments must always equal Savings. 

But that fundamental law of nature and economics has been set aside by the MMT Wizards.

Remember that the Piper will always get his pay.

But the risk that the cost will be the survival of the whole financial system. 

MMT or money printing lasts until the world wakes up to the fact that there was no substance and no value in the money that inflated all the bubble assets of stocks, bonds property etc.


So if the money was created out of mainly Nitrogen and Oxygen or thin air, the value of the assets created must clearly be mainly air too.

The only thing that needs to trigger the coming collapse is the evaporation of confidence. 

And once confidence goes so will the system with it.

But governments and central banks will clearly not give up without a final stand. 

This will involve money printing into the hundreds of trillions and eventually quadrillions as the global derivatives bubble implodes. 

Remember that when counterparty fails, the gross derivatives of $1.5 to $2 quadrillion will remain gross. 

Hyperinflation will obviously be the consequence as the currency collapses.


No one can of course with certainty say that this scenario is guaranteed to take place. 

But what we can say is that the risk is greater than any time in history.

Because never before have so many countries been indebted to such a great extent with absolutely ZERO ability to repay the debt or to finance it at proper market rates.

Manufacturing of fake money and manipulation of interest rates break all rules of nature and creates a state of massive disequilibrium that cannot be sustained.

It is all really very simple. 

Extreme moves always return to the mean in normal times. 

But we haven’t had normal times in the last half century so the extreme swing of the pendulum to one side will result in a similar counter reaction.


Thus after the massive creation of more fake money with zero economic benefit, all assets including paper money will implode with devastating effects on the world financial and economic situation. 

And that is how the world goes from a depressionary hyperinflation to deflationary implosion and depression.

So this is in my view a very likely scenario in the next 3-10 years and probably sooner rather than later.

Remember that we are talking about probabilities and definitely not certainties. 

I can clearly be wrong but more likely in the timing than in the eventual outcome.

Thus in my view the systemic risk is greater than any time in history. 

What actually will happen only historians can tell us with certainty. 

Because hindsight is the most exact of all sciences!


As regards the currency risk, this is the obvious consequence of the systemic risk. 

And although many will reject the systemic risk, few can deny the currency risk.

Since 1971 all currencies have lost 97- 99% of their value in real terms. 

And since 2000, they have lost around 80%.

Thus it is absolutely guaranteed that all currencies will lose the remaining 1-3%. 

The only question is how long it will take. 

Again, I would be surprised if it takes as much as 10 years. 

Between 3 and 5 years seems more likely.

So there we have it. 

Not a rosy scenario but the consequences of creating a world based on debt, fake money and deceit leading to a total lack of morality and real values.

But remember that countries and empires have gone through major forest fires before and life on earth has continued and advanced. 

So even though the coming setback that we are all facing is likely to be greater than the world has ever encountered before, but it will create the foundation for future healthy growth.


Wealth preservation is what it says, protecting current wealth and also generational wealth. 

European families who have survived financially for centuries have always had major portions of their assets in land and in physical gold.

Gold is a 100%-proof bet on the continued failure of governments’ monetary policies.

Or in other words, holding physical gold is like putting your money on black on a roulette table with only black numbers. 

You know that you will win every time as history proves with 100% certainty that governments will continue to destroy the currency and thus the economy.

So regardless if investors are in agreement with the systemic collapse that I have outlined above, no one can deny the currency collapse since that has happened without fail throughout history.

Governments are incapable of stopping deficits or money printing. 

The US for example has increased its debt every year since 1930 with four year’s exception. 

America is a bankrupt country but has managed to hang on to its reserve currency status until now. 

But this comes at an enormous cost. Since Nixon “temporarily” took away the gold backing of the dollar in 1971, the dollar has lost 98% in real terms.

With the current state of the US economy and with Biden having already committed $6 trillion in his first 100 days, the dollar is guaranteed to implode.

The principal objective of a government is to be reelected and the only way to achieve that is to buy the people’s votes. 

Thousands of years of history proves that.


In times of political and geopolitical upheaval gold also serves as a protector and life saver.

Gold is also your best protection against a rigged and totally corrupt financial system.

To take a few examples, just look at the Romans in 180 to 280 AD when the Denarius lost 100% of its silver content or the people in Uganda during Amin’s rule or in Yugoslavia during the hyperinflation of the early 1990s or in Venezuela today, to mention just a few examples in history. 

The list will fill a whole book.

Within the next 5 – 10 years investors are likely to lose in excess of 90% of their wealth.

This projection has nothing to do with sensationalism or Cassandra fortune telling

The likelihood of having nothing left in real terms is substantial just from currency risk.


So now is the time to get out of the financial system for a major part of your assets and invest in physical gold and silver.

The average investor hasn’t got a clue of the REAL return on investment. 

REAL in this case means measured in stable money. 

And the only stable money in history, WITHOUT EXCEPTION, is of course gold.

No one must believe that measuring your wealth in the US dollars for example has got anything to do with the REAL performance.

Wealth preservation is now paramount and that involves not having the majority of your assets in paper wealth within a shaky financial system.


Many are asking about the Basel III requirements in relation to gold. 

Alasdair Macleod has written some excellent articles on this subject on the King World News site.

According to Basel III, the bullion banks (in rest of Europe from June 30 and December 31 for UK) can only count physical gold owned by them as a Tier 1 asset. 

In theory that would force them to either acquire major amounts of physical at a high cost or sell their paper gold. 

Since we are talking about substantial amounts of paper gold, this would lead to panic in the gold market.

But it is clear that the market is not expecting panic since this news is already known by market participants and investors. 

Also, it is not in central banks’ interest to cause panic.

The former Governor of the Bank of England, Eddie George, described such a moment back in 1999:

“We looked into the abyss if the gold price rose further. 

A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. 

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. 

It was very difficult to get the gold price under control but we have now succeeded. 

The US Fed was very active in getting the gold price down. 

So was the U.K.”

Since the central banks control and own the BIS (Bank of International Settlement) which is behind Basel III, they are not going to allow the gold market to get out of hand, IF THEY CAN STOP IT.

So in my view there will initially be some fudging of the rules and a transition period to prevent such panic.

Even if it doesn’t happen today, I do believe that the central banks will lose control of the gold market in the not too distant future.


Gold began this bull market in 2000. 

But it is really a bear market in currencies and in paper assets which we are facing.

As the chart below shows, gold went up for 12 years in a row 2000 to 2012. 

After a 3 year correction, this bull market is now resuming.

I expect gold to do as least as well in coming years as the 2000 to 2012 run which was a compound annual growth rate of over 20% for 12 years.

Also the short term picture for gold looks very favourable. 

On March 31st when gold was $1,707, I said that the gold bottom was in. 

The price is up almost $200 since then but that is just the beginning. 

A strong and sustained move is starting very soon.

There is no better asset than gold to protect against the systemic and currency risk which the world is facing. 

But it is not just a matter of wealth preservation as I expect gold to also generate substantial wealth enhancement in coming years.

The End of the C.D.C. Eviction Moratorium Means Trouble

By Peter Hepburn

Credit...John Moore/Getty Images

A federal judge last month struck down the eviction moratorium put in place by the Centers for Disease Control and Prevention. 

Though the judge stayed her decision pending appeal, the ruling is a harbinger of the inevitable: the end of the federal eviction moratorium, which is set to expire on June 30. 

With millions of tenants behind on rent and emergency rental assistance only now beginning to be disbursed, few states are ready for this eventuality.

According to the Covid-19 Housing Policy Scorecard — which is run by the Eviction Lab at Princeton where I work — only two states, Minnesota and Washington, afford renters strong pandemic-related protections, defined as freezing the eviction process in most or all cases. 

Thirty-nine states have few, if any, protections. No state that voted for Donald Trump in 2020 is still offering meaningful protections to renters.

The C.D.C. moratorium, which has now been in place for nine months, limits landlords’ ability to evict tenants who fall under certain income thresholds or are unable to pay rent because of a medical or economic hardship. 

Tenants must attest — and often prove under cross-examination in court — that they have made good-faith efforts to get rental assistance and have nowhere to go if evicted.

In anticipation of the end of federal renter protections, progressive housing activists persuaded lawmakers to make a robust investment in emergency rental assistance. 

Congress appropriated $25 billion in the Consolidated Appropriations Act in December and an additional $21.55 billion in the American Rescue Plan in March. 

These funds are intended to help renters catch up on back rent and to support landlords struggling to make mortgage and utility payments because of missed rent.

This aid, however, won’t be equally available everywhere. 

Congress allocated assistance on the basis of state population, without taking into account differences in the number of renter households, variation in the cost of rent, or the extent of pandemic-related hardship.

The legislation also mandated a minimum payment to smaller states. 

The result is that far more assistance will be available to renters in smaller, rural states than in larger, urban states — those that, in many cases, were hardest hit by the pandemic. 

The American Rescue Plan included discretionary funds for “high-needs grantees,” but they do not come close to providing equal resources to renters.

If you were to divide the maximum aid allocated to the states by the number of occupied rental units, each renter household in New York would get $766, compared to $5,167 in Wyoming. 

Based on median rent data from the American Community Survey, that would cover roughly half a month’s rent in New York, but six months in Wyoming.

Some funds were also allocated directly to large cities and counties, but at a lower rate. 

For example, New York City directly received only $645 million in rental assistance — just a quarter of the $2.6 billion allocated to New York despite the city’s being home to nearly two-thirds of the state’s renting households. 

Decisions about the distribution of state funds will vary across the country in ways that could shortchange renters in dense urban centers.

Ideally, better-funded states will use this aid to ensure that all rental debt is paid down and to institute eviction diversion, right to counsel, and housing counseling programs. 

If they don’t pursue such strategies, or if excess funds remain, the American Rescue Plan allows for the reallocation of unused aid. 

Money that Alaska isn’t able to use could, in theory, be sent to California. 

But that reallocation won’t happen until October at the earliest, well after many renters have been evicted.

When the C.D.C. moratorium ends, renters in large Republican-leaning states are likely to be hit the hardest. 

Renters in New York, California and Nevada get much less in emergency aid, but still have meaningful state-level protection. 

Places like Montana and South Dakota have few renter protections, but they have ample assistance available. 

By contrast, in places like Florida, Indiana, Ohio and Texas, renters will be receiving little in rental assistance and have few protections available.

Cities have interpreted the C.D.C. eviction moratorium in a wide variety of ways. 

Notably, the moratorium still allows landlords to file eviction cases for reasons other than failure to pay rent. 

The records of these cases — even those that do not eventually lead to an eviction — trail tenants, tarnish their credit, and limit their ability to find housing later. 

Across sites monitored by the Eviction Tracking System, more than 255,300 eviction cases have been filed since the C.D.C. moratorium went into effect — 54 percent less than normal over the same period in a typical year, but still troubling.

When the moratorium ends, renters’ rights will revert to the strict prepandemic status quo. Last spring, states put in place a range of moratoriums and renter protections. 

In mid-May 2020, nearly a quarter of renters lived in a state with a strong moratorium. But state governments largely abandoned these policies by the end of last summer.

So in the short term, maintaining the C.D.C. moratorium is affording critical time for rental assistance to reach tenants and landlords. 

While the initial $25 billion in assistance was provided to states and cities in late January, it has taken time for officials arrange how to distribute funds.

Overly burdensome application procedures delayed this process, but the Biden administration recently announced changes that should significantly improve the pace of distribution. 

Assistance is now available in most places and aid is being distributed more quickly, though not without problems.

What’s most encouraging is that policymakers are now more seriously exploring longer-term options to support renters. 

The pandemic has inspired attempts to expand the right to legal counsel in eviction cases, to establish eviction diversion programs, to seal records in eviction cases and to increase the cost for landlords of filing eviction cases. 

These efforts signal a potentially larger shift in renter protections and a rethinking of how eviction should — and should not — be used.

Peter Hepburn (@ps_hepburn), an assistant professor of sociology at Rutgers University-Newark, runs the Eviction Tracking System at the Eviction Lab. 

Strategic Investment Potpourri

By John Mauldin 

If it seems I have been talking about the Strategic Investment Conference for weeks… well, you’re right. 

It really was that much to unpack, and I’ve still only scratched the surface. 

I will wrap up next week.

First, however, I want to make sure you get a few other important points. 

I’ve been organizing the SIC letters by subject: China, inflation, deflation, technology, and politics/geopolitics

In general, that is how I organize all my letters, typically around one topic. 

But throughout the SIC, speakers made important points that don’t neatly fit into a broader theme. 

I’ll cover some (not all) in this letter. 

We’ll jump around a bit as the sections don’t necessarily connect to each other. 

They are in no particular order, but all important.

Let me also apologize to the SIC speakers whom I haven’t featured. 

It was all wonderful and I can’t possibly cover everything. 

If you like what I’ve been sharing, you need to join us next year, for what most believe was the single best economic conference ever. 

How we will improve the experience next year, I’m not sure. 

But for 19 years we’ve made each event better than the last.

Now, let’s jump in.

Build to Rent

On Day 1 we heard from two of the country’s top residential real estate experts: Barry Habib and Ivy Zelman. 

I invited them because housing is both personally important to most people and also an important (and neglected) investment opportunity.

I shared some of Barry Habib’s wisdom back in April (see Tiny Housing Bubbles), and he expanded on those ideas at SIC. 

I want to draw your attention to Ivy’s presentation because she talked about something new: the “build-for-rent” segment. 

Large investors are building single-family homes not to sell, but to rent. 

This concept has been growing for several years and has now really caught on as the potential investment returns become so clear. 

It’s now a fundamental part of the commercial real estate pantheon. 

Quoting from Ivy:

We rarely think of build-for-rent. 

It's really part of single-family development, but we jokingly call it the prettiest girl at the dance right now because there is a wall of capital that has shifted to this asset class. 

And there's a tremendous amount of incremental “right-now money” being poured into this asset class.

And it is countercyclical, but there's no question that there's an uncertain amount of supply that's coming. 

And will this rental product actually hold up with respect to rental prices rising at the rate they're rising?

So, just to give you some perspective, build-for-rent actually in 2020 was twice what it was in 2018. 

But even with that number being double from that time period, it still only represents today a 4-1/2% market share nationally. 

Now, keep in mind though, at a national level, that doesn't really give you the perspective of what's happening in the Texas market or the Carolinas and Florida, and in Arizona and Nevada where I believe that single-family rental just today with what's in the pipeline probably accounts for 10-plus percent of that market. 

And what we do know is that when I talk to builders, and I'll say, "So, how many of your sales this quarter went to build-for-rent operators?" 

And they'll say, "I don't know. 

We probably this year in total could do 200 units, but our plans for next year are to do 2,000."

There's a massive ramp coming. 

And everybody's trying to find a dance partner on the dance floor whether they’re hedge funds, pension funds, private equity firms, or sovereign wealth funds. 

There's just more capital than I've ever seen other than the multi-family back before the great financial crisis.

Alarm bells may ring when you hear about capital flooding into a segment. 

In this case, though, it’s for an asset necessary to a growing number of young Millennials. 

For whatever reason, they aren’t home buyers but have to live somewhere. 

They need more than an apartment as they start families.

Further, they want the apartment-like convenience of walking away at the end of the lease for another job somewhere else or to actually buy a home. 

They want the pleasure of living in the single-family home without actually having to purchase one.

In many ways, the financial aspects look similar to the multifamily market (apartments) but simply adjusted to the new generation’s tastes and priorities.

Room to Breathe

Constance Hunter, chief economist at global accounting giant KPMG, gave us a fantastic update on her team’s economic outlook. 

She talks to as many as 40 global CEOs a week, truly at the center of the information spiderweb. 

Unlike the section on housing above, which was focused on the US, Constance is looking at the world.

With that perspective, Constance reminded us the COVID recovery won’t proceed at the same pace everywhere. 

It depends on the prior trends, virus conditions, vaccinations, and other factors. 

But in any case, the US will probably be first to regain its pre-pandemic trend.

Source: Constance Hunter

Note the UK, which is relatively ahead of most others in vaccinations, isn’t in the same position economically. 

Even Brazil is slightly ahead. 

That speaks to the continuing Brexit turmoil and trade uncertainty the country faces.

As for the US, Constance noted the Fed is heavily focused on employment, not just inflation.

Even if jobs keep growing strongly from here (which isn’t guaranteed), we are still a couple of years away just from recapturing the pre-pandemic jobs trend. 

Will the Fed tighten when the economy is still millions of jobs underwater? 

Unlikely, if we are to believe their rhetoric.

Source: Constance Hunter

A Rare Asset

Cryptocurrencies were a big topic at SIC, and not just with the younger crowd. 

I was interested to hear Felix Zulauf, who is about as conservative a Swiss investor (not to mention personally) as you can possibly be, make positive comments on Bitcoin. 

Rather than put words in his mouth, I’ll just quote him. 

Felix was interviewed by Grant Williams. 

They went from talking about gold straight into Bitcoin, which is itself important.

Grant Williams: I want to come back to the point you made about liquidity there in a second, but let's stick with gold and cryptocurrencies for the time being, particularly Bitcoin. 

No matter what you say, whichever side of the debate you stand on, there's some kind of legitimacy problem with Bitcoin simply because there are so many doubters. 

Has the recent action, do you think, with people clearly kind of using gold [and going] into Bitcoin as an inflation hedge, as a risk or an asset, whatever you feel it might be, does that legitimize it in any way or is it really pure price speculation at this point? 

Because Bitcoin has been so aggressive and [in its volatility].

Felix Zulauf: It is a rare asset because it is limited, and you know that it won't go beyond that limit. 

That is not true for all the cryptocurrencies, because each one is limited, but there are more and more of them, so therefore, there is no limitation. 

But for the one that dominates the marketplace like Bitcoin, there is a legitimate reason to own it. 

I do not believe that Bitcoin will disappear very quickly.

The problem with Bitcoin is that several countries have now declared it as illegal. 

It's not allowed in China. 

I think it's not allowed in Turkey. 

It's not allowed in India, if I'm not mistaken. 

So, those countries are countries that feel potential capital outflow. And therefore, this is actually a harbinger of capital controls where they are not in place yet. 

Countries that fear that their capital flows away outside of the country are fearful, and therefore, they forbid buying and transacting in cryptocurrencies like Bitcoin. 

That's not the case in the western world yet.

I do believe that Bitcoin will stay, will probably go higher over the years because the fear of currency development that is logical, will mean that the central banks will become much more aggressive in the next cycle when the next problem shows up, et cetera. 

And therefore, I think it's legitimate. 

It's more volatile. 

It's probably not a replacement for a currency, but it's an asset where you can store some value and some savings. 

It's not a currency because it's too complicated and it's too much energy consuming for its transactions… 

But I think your cryptos will stay.

Narrative Water

I put John Hussman and Ben Hunt as a panel of two because they’re both fascinating yet misunderstood. 

Neither mind saying controversial things, and eagerly engage their doubters. 

Personally, I found their session to be one of the most enjoyable and enlightening of the conference. 

Putting two great thinkers together draws out important insights.

John Hussman, for instance, has taken a lot of heat for being labeled a permabear. 

Which lately turned out not to be the case. 

He held to classic standards of valuations which have simply not been useful the past few years. 

In his defense, he is not the only person to hold such views

Yet faced with undeniable error, John adapted. 

I liked the way at SIC he segued from his own history to Ben Hunt’s idea of “narrative” as a market driver.

John Hussman: 

Finally in late 2017, after a number of incremental adaptations that were not sufficient, I finally threw my hands up and said, "There's not a limit. 

We can't rely on [historical] limits to speculation. 

There is something in people's heads that is different here that is not based on fundamentals. 

That is not based, not even constrained by historically reliable limits." 

That doesn't mean that valuations will persist forever to go up. 

What it does mean is that we have to constrain any bearishness we might have to periods where market internals are also negative. 

In other words, where people's mentality has shifted toward risk aversion, and we can talk about why that's important, Ben and I, but it has a lot to do with narrative.

With that, Ben, I think probably what I'll do is pull you in this way—you've talked about this David Foster Wallace story of these two young fish swimming, and then there's an older fish that comes by and says, "How's the water, boys?" and swims away. 

After a while, the two younger fish look at each other, one of them says, "What the hell is water?" 

You talk about that water being a narrative. 

It's swimming without even knowing that we're swimming in it. 

Talk about that. 

Then what I want to do is wind that back to what happened with quantitative easing and zero interest rates, because I think it's enormously related and it's something that investors should really think about.

Ben Hunt: 

I think that's right, John. The water in which we swim is the water of narrative. 

Look, we all know this. 

By narrative I mean it's the articles that we read, it's conferences like this, the speakers that we hear at a conference like this, it's what we hear on CNBC, it's what a politician says to us, is what Uncle Warren tells us at the Omaha conference. It's all of that.

We know, I think in our hearts, that we are impacted by this. 

We're human beings, we're a human animal, and we've evolved over millions of years to respond to these messages. 

That's what it means to be a social animal, a truly social animal like human beings are.

We know it's part of us, but I think the problem or the difficulty has always been, I'll say, recognizing how pervasive and how impactful it is on us. 

Because I’ve got to tell you, John, I had a very similar, John, call it an epiphany, but it's a very similar process for me as well, I think a little bit earlier than yours. 

For me it really happened in the summer of 2012 with Draghi's “Whatever it takes,” with these words around an OMB program. 

It was just words and it was so impactful to me that that's all it took, the words. 

The words were enough.

John Hussman: 


In Buddhism, it's interesting, there's a distinction between reality, what you would call truth with a capital T, and what are sometimes called objects of mind. 

Objects of mind are mental formations that we use to construct our own reality of the world.

This is, I think, really important. 

If you read, for example, Soros, he talks about reflexivity. 

I did my doctorate in, basically, asymmetric information and equilibrium and that sort of thing, inference from other people's information through prices and so forth. 

If you think about markets, markets are basically places where people have beliefs, they turn them into behaviors, they produce market behavior, and then that market behavior comes back around and informs their beliefs.

Read John’s last sentence again, and then again. 

Mental beliefs become individual behaviors, which become market activity, which then affects beliefs. 

Knowing where you are in that cycle is critical to investing success. 

It’s also incredibly difficult.

That self-fulfilling process creates the water that we swim in, what Ben calls the narrative, the massive amount of information that inundates us daily. 

In the early part of my career, we had The Wall Street Journal and a few other publications. 

Certainly no financial TV. 

Now we “swim” in an ocean of information (to which Mauldin Economics and I contribute our own few gallons). 

If we’re not careful, we absorb information from sources that simply reinforces our beliefs rather than challenging them.

We especially see this in political information, but I think we tend to consume economic and investment information in the same way, without realizing it. 

Behavioral economists call this “confirmation bias.”

I try to seek out competing ideas by reading many sources, purposely seeking those who disagree. 

A few SIC attendees said they were frustrated all of the speakers at the conference didn’t agree. 

I smiled, because that meant I did my job. 

The SIC is designed to make us think, not tell us what to think.

Labor Scarcity

Karen Harris heads Bain’s Macro Trends Group, which produces some fascinating research. 

Her SIC presentation on the Post-COVID World unearthed a bunch of important issues. 

One of her comparisons I found especially enlightening: In recent decades we enjoyed not just abundant capital but abundant labor. 

Yet as her chart shows, growth in the number of workers probably won’t continue because it came from non-repeatable factors.

Source: Karen Harris

In the 1970s we had a large Baby Boom generation entering the workforce. The number of working women grew rapidly. 

And then we had India and China integrating their enormous populations into the global labor supply None of those are going to happen again, or anything like them. 

The working-age population is now flat or even declining in some large economies, including China and other parts of Asia.

That will be a problem for business. 

Karen thinks the solution will be more automation as labor becomes scarcer and more expensive. It will increase productivity, but with significant side effects we will have to address.

Help Wanted

Mauldin Economics is looking for a few great people to join our team. 

We have several positions open.

Editorial Director: Work with a team of managing editors, writers, and analysts to ensure the highest quality content across our publications. 

Duties include developing exciting new products, constant improvement of existing products, collaborating with our marketing team to expand circulation, set and maintain high editorial standards, act as a mentor to new editors, and help our writers and analysts express their ideas. 

This position is part of the management team. 

Experience in the financial research/publishing industry is required. 

Must be self-motivated, collaborative, and driven to help investors succeed.

Managing Editor

Work with one or more of our writers on line edits and content creation; strengthen arguments, streamline prose, cut unnecessary words, proofread, fact check, and scrutinize every detail of our content prior to publishing; collaborate with the Publisher, Editorial Director, and marketing team on product development and marketing Must be able to communicate in a clear, concise manner. 

A degree in English, PR, Communications, or similar discipline is ideal but not required. An understanding of financial markets is desired.

Research Analyst: This entry-level position involves supporting our editors and analysts. Duties include gathering of basic financial information, producing charts, research, tracking and updating our portfolios, and writing short essays and articles. If writing is new to you, we can help, so long as you have interest and are willing to iterate with our talented editors.

All positions are remote, but you’ll be speaking with our team every workday and you’ll have a chance to meet in person several times a year. 

If you are interested in a position, please write a letter telling us about yourself and why you’d like to join our team. 

Send your letter along with a resume to, with the position title in your subject line. We hope to hear from you!

New York, DC, and Maine

I leave for New York on Sunday for meetings Monday through Wednesday. When I originally scheduled the trip, I did not check my calendar and did not realize that Sunday is Father’s Day. I just assumed I could schedule a dinner meeting for Sunday night. It turns out everybody I talked to had obligations. So, if you find yourself in New York on Sunday evening and would like to talk to your humble analyst, I will be in the lobby bar at the Marriott Renaissance on 37th near Seventh Street (which is on the sixth floor) at 6:30 pm.

I will also be on the Larry Kudlow show (Fox Business) between 4 and 5 pm.

Finally, a thought on dumb and dumber lumber. Longtime readers know that I am not a big believer in tariffs used for protectionism. Therefore I was not pleased with Trump’s imposition of tariffs on Canadian lumber. It might help a few businesses here and there, but it runs up the cost of housing and construction for the rest of us. Now, I read that Biden may actually increase the lumber tariffs when there is clearly a shortage. Color me perplexed. Isn’t the cost of lumber high enough already? You can’t tell me American producers don’t have enough margin room today.

And with that thought, I’ll hit the send button. Have a great week and I’m looking forward to not being as socially distanced next week. Follow me on Twitter.

Your ready to get on a plane analyst,

John Mauldin
Co-Founder, Mauldin Economics

China’s wolf warriors bristle at Covid blame

A new US investigation into the origins of the pandemic raises the stakes for Beijing and Washington

Gideon Rachman 

The Xi administration and its wolf-warrior diplomats have spent the past year alienating potential partners

The slump in relations between China and Australia sounds like a small detail in the great picture of world affairs. 

But this is a corner of the canvas that merits close attention. 

It provided an early indication of China’s extreme sensitivity to international calls for an inquiry into the origins of Covid-19.

The deterioration in the relationship between Beijing and Canberra has been startling. 

Back in 2014, President Xi Jinping gave a speech to the Australian parliament hailing a new trade deal and the “vast ocean of good will between Australia and China”. 

But over the past year, China has imposed tariffs and other measures on Australian wine, food and coal, and Chinese officials have accused the country of racism and war crimes.

The origins of the dispute may be just as significant as the way it unfolded. 

Late last year, Chinese diplomats released a dossier listing 14 grievances against Australia. 

The gripes included blocking foreign investment deals and funding “anti-China” research. 

But one particular grievance stood out.

Looking at the chronology of the dispute, it is apparent that the moment China truly escalated matters was when Canberra demanded an independent inquiry into the origins of Covid-19. 

Scott Morrison, the Australian prime minister, even called for international experts to be given “weapons inspector-style powers” in conducting their probe. 

China’s ambassador to Canberra responded by warning that this perceived insult might trigger a boycott of Australian produce by Chinese consumers. 

Within months, the Chinese government itself had taken the initiative by imposing tariffs.

Beijing did eventually agree to a World Health Organization investigation. 

But the inspectors were very limited in what they could see. 

China’s evident desperation to control the narrative backfired — fanning the suspicions of those who believe that the country has something to hide.

In reality, a guilty conscience is not the only plausible explanation for Beijing’s response. 

The broader difficulty is that China’s reaction to any criticism in the outside world seems to be a toxic mix of threats, shrill rhetoric and secrecy. 

This applies whether the topic is Xinjiang, Taiwan or Covid-19.

This style of “wolf warrior” diplomacy is frequently counter-productive. 

But it is also an inevitable product of a domestic system that demands sycophancy towards President Xi — and which enforces that demand with censorship and repression. 

It is unrealistic to expect a system that is closed and paranoid at home to be flexible and open in its engagement with the outside world. 

A lot of aggressive messaging from China’s diplomats may even be primarily intended for ordinary citizens or bosses back home. 

The goal is to show that the Xi government is standing up for China.

When it came to investigating Covid-19, the Chinese government was also indirectly shielded by Donald Trump. 

The fact that the former US president is widely regarded as a liar — and had a clear political motive for blaming China for the pandemic — made it easy to dismiss all suggestions of a lab-leak in Wuhan as just another far-right conspiracy theory.

Joe Biden’s more cautious approach is paradoxically more threatening to Beijing because it carries more credibility — both at home and overseas. 

The US president has openly admitted that his intelligence agencies are divided about the lab-leak theory. 

He may be genuinely fearful of the consequences if the theory is confirmed. 

Even if the Biden administration attempted to limit the fallout from such a finding, there would probably be lawsuits in the American courts — demanding vast reparations from China. 

The White House’s efforts to maintain a delicate balance between confrontation and co-operation with China would be blown out of the water.

The stakes for China are very high. 

Over the past year, China has succeeded in changing the narrative over Covid-19. 

After initially reeling under the impact of being the first to be hit, Beijing has managed to highlight China’s success in containing the disease, compared with the high death tolls in the west.

The news of the fresh US inquiry suddenly puts Beijing on the spot again. 

Faced with this immensely difficult situation, China will need all the friends it can find. 

But the Xi administration and its wolf-warrior diplomats have spent the past year alienating potential partners. 

The latest blow was the European Parliament’s decision to freeze the ratification of a major investment agreement between China and the EU — following Beijing’s imposition of sanctions on European officials and institutions, which was itself a response to EU sanctions imposed over Xinjiang.

Relations with India have also taken a steady turn for the worse over the past year. 

For New Delhi, the turning point was China’s aggression in the Himalayas last year — which resulted in the death of troops on both sides. 

Senior Indian analysts believe that the pressure that Beijing was feeling over Covid-19 in the summer of 2020 may have been a background factor in the decision to escalate tensions.

There is a clear risk that if China feels newly cornered over Covid-19, it will once again respond with aggression — or with the search for some kind of international diversion. 

The drive to understand how the pandemic began is inevitable and necessary. 

It is also dangerous.