"..the ringmasters knew it was a clownshow and that these non-real measures of âsuccessâ were empty clothes in want of an emperor.."
âGovernment powerless to intervene in non-banking industry.
âTHE government has confirmed there is absolutely nothing it can do to save the non-London-based steel industry.
âAs thousands of redundancies in Redcar are followed by hundreds more in Scunthorpe, the business secretary said he wishes there was something he could do.
âSajid Javid continued: âTragically, the industry has been hit by a perfect storm of being in the provinces, traditionally supporting Labour and not being financial services.
âAdd that to us not wanting to do anything that might offend our new Chinese friends, and thereâs absolutely nothing we are prepared to do.
âIf only these plants manufactured something useful, like insurance derivatives supported by credit default swaps, then weâd gladly go billions into debt for them.
âBut steel? Whatâs that even for?â
âSteelworker Roy Hobbs said: âPeople are over mass-produced steel anyway. Iâm moving into artisanal hand-beaten bronze for the hipster market.â
â From âThe Daily Mashâ (motto: âItâs news to usâ), October 2015.
âAâs hire Aâs and Bâs hire Câs.â
el gato malo on Substack.
We had heard the phrase âGet woke, go brokeâ already, but we are nevertheless indebted to el gato malo for highlighting the role of wokery beyond the call of duty in the recent collapse of Silicon Valley Bank:
âSVB was quite probably âamericaâs wokest bank.â
âmany had levelled accusations of ponzi, circularity, and self-dealing around it as well esp. around the practice of funding âsocial goodsâ in circular fashion. SVB was an LP in many VC funds. those VCâs would then pressure portfolio companies to take out venture loans from SVB and SVB would, in turn, require those companies to keep their funds at the bank as part of the lending agreement.
âmany of the VCâs were engaging in âinvest on ESG and then force adoption of the products through lobbyingâ crony corporatism.
âthere was an awful lot of âflow of funds to non-economic ends.â
âthey all glom onto this derangement of markets. why compete when you can mandate?
âbut it was all ignored and swept under rugs because you had a pile of raging Bâs and Câs swinging their sub-mediocrity glorifying moral code around their heads like a morning star and preventing criticism or even assessment.
âthey all loved it. the politicians loved it. the regulators loved it.
âbecause it was all Bâs and Câs, chosen for mediocrity and ideology, not talent.
âand no one seemed to see the problem.
âitâs positively soviet.
âbut it turns out that âwokeâ is not great risk management
âbut they sure did have a lot of itâŠ
âand perhaps this is why the very VCâs that benefitted from the circular back-pat squads so suddenly turned tail and fled causing a run on the bank for fear of what might be under the covers.
âbecause the ringmasters knew it was a clownshow and that these non-real measures of âsuccessâ were empty clothes in want of an emperor.
âthe whole self-aggrandizing ecosystem is bankrupt.â
Back, briefly, to comedy of another vintage. Harold Ramisâ 1993 film âGroundhog Dayâ may well be the funniest thing to come out of the 1990s, apart from Vanilla Ice or New Labour. As most readers will know, the filmâs narrative has Bill Murrayâs cynical weatherman finding himself trapped in a surreal existential crisis, and forced to live out the same day over and over again. Pretty soon he begins a plot to seduce his boss, Andie MacDowell, which gives rise to the following exchange:
Him: You werenât in broadcasting or journalism?
Her: Uh-uh. Believe it or not, I studied 19th Century French poetry.
Him: What a waste of time !
The year 2011 gave us something that manages to trounce the original Bill Murray response. In the HBO movie version of Andrew Ross Sorkinâs âToo Big To Failâ (a.k.a. The Last Days of Lehman Brothers), Paul Giamatti (playing The Ben Bernank) tells a roomful of politicians that he spent his entire academic career studying the Great Depression.
Him: What a waste of time!
Even by the standards of Economics, which as we have stated before, as per P. J. OâRourkeâs definition, is an entire scientific discipline of not knowing what the hell youâre talking about â and thereâs some question over that use of the adjective âscientificâ â youâd have to be going something to devote an entire academic career to studying the Great Depression, and drawing all the wrong conclusions. A little like devoting an entire career to building a scale model of the Great Wall of China out of matchsticks, and then accidentally falling on it one night, and setting fire to it. Whilst being an idiot.
Here is what we think. More specifically, here is what Murray Rothbard wrote in 1963:
âThere are other values in deflation, even in bank runs, which should not be overlooked. Banks should no more be exempt from paying their obligations than is any other business. Any interference with their comeuppance via bank runs will establish banks as a specifically privileged group, not obligated to pay their debts, and will lead to later inflations, credit expansions, and depressions. And if, as we contend, banks are inherently bankrupt and ârunsâ simply reveal that bankruptcy, it is beneficial for the economy for the banking system to be reformed, once and for all, by a thorough purge of the fractional reserve banking system. Such a purge would bring home forcefully to the public the dangers of fractional reserve banking, and, more than any academic theorizing, insure against such banking evils in the future.â
Contrary to the received wisdom that interventionist government (under the administration of the ill-fated Herbert Hoover for some years before FDR took the presidency) ameliorates and foreshortens a dismal business depression, Rothbard suggests (in âAmericaâs Great Depressionâ) that the very intervention so clamorously called for (both then, and now) actually extends and amplifies it:
âIf government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt ? The first and clearest injunction is: donât interfere with the marketâs adjustment process. The more the government intervenes to delay the marketâs adjustment, the longer and more gruelling the depression will be, and the more difficult will be the road to complete recovery. Government hampering aggravates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure. If, in fact, we list logically the various ways that government could hamper market adjustment, we will find that we have precisely listed the favourite âanti-depressionâ arsenal of government policy. Thus, here are the ways the adjustment process can be hobbled:
Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Further credit expansion creates more malinvestments, which, in their turn, will have to be liquidated in some later depression. A government âeasy moneyâ policy prevents the marketâs return to the necessary higher interest rates.
Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment. Furthermore, in a deflation, when prices are falling, keeping the same amount of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this greatly aggravates the unemployment problem.
Keep prices up. Keeping prices above their free-market levels will create unsaleable surpluses, and prevent a return to prosperity.
Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved capital even further. Any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption.. Any increase in the relative size of government in the economy.. shifts the societal consumption-investment ratio in favour of consumption, and prolongs the depression.
Subsidize unemployment..
When too much easy money helped provoke a banking crisis, it is difficult to see how even more of the same can help to resolve it. We can say with certainty that printing money is of itself inflationary. And as Rothbard also said,
âOnly governmental inflation can generate a boom-and-bust cycle.. the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown [in âAmericaâs Great Depressionâ] how government intervention generated the unsound boom of the 1920s, and how Hooverâs new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of âenlightenedâ economists. And in any other depression, past and future, the story will be the same.â
The rescue of Silicon Valley Bank has undoubtedly accelerated the arrival of the long-awaited Fed âpivotâ back towards easier monetary policy. Cue even more inflationary pressure.
Meanwhile, a growing number of market observers sceptical of the âPhD standardâ believe that the central bankers are on their way to being replaced â by direct market intervention on the part of governments instead.
The world economy is clearly slowing. Confidence in central bankers is rapidly eroding. Stock markets, in the main, have largely decoupled from economic reality â perma-QE means that liquidity now trumps profitability as a driver of market returns.
Adam Smith in âSupermoneyâ expressed the sentiment perfectly:
âWe are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid no-one wants to leave while there is still time, so that everyone keeps asking, âWhat time is it? What time is it?â But none of the clocks have any hands.â
If you elect to own equities, hold defensive, cash-generative, unindebted, geographically unconstrained âvalueâ.
Hold uncorrelated assets. (We favour systematic trend-following funds.)
Hold gold and silver.
And will somebody please hold unelected central bankers â and elected government finance officials â accountable for the growing chaos they are inflicting on the financial world before the entire global currency system collapses.
âŠâŠâŠâŠ.
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you, too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio -with no obligation at all:
Tim Price is co-manager of the VT Price Value Portfolio and author of âInvesting through the Looking Glass: a rational guide to irrational financial marketsâ. You can access a full archive of these weekly investment commentaries here. You can listen to our regular âState of the Marketsâ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.
Ah Tim, I wish I had read your piece before I published mine on more or less the same topic today. I chose to quote Mises over Rothbard although they both provide outstanding treasure stores of excoriating criticism of the interventionist tendencies of all governments always. Great piece replete with some excellent references.
Iâm boring myself here never mind the poor souls who are reading my drivel but this is yet another brilliant piece identifying that Government is not the solution to our problems, it is the problem. They need to get out of the way end of.