Lao Tzu on living in the present

If you're depressed, you're living in the past. 

If you're anxious, you're living in the future. 

If you're at peace, you're living in the present. 

~ Lao Tzu

The Economist on the U.S. economy

In the history of modern economics America's three-decade outperformance is remarkable.  Can it continue?  Throughout this report we will consider reasons for pessimism, from poisonous politics to fiscal frailties.  Set against these are a relentless dynamism, the essential characteristic of the American economy and the ultimate force propelling it forward.

~ "The envy of the world: The American economy has left other rich countries in the dust. Expect that to continue...," The Economist, October 19, 2024

In summing up the Trump and Harris proposals, we point out again that neither candidate knows how to deal with stagflation.  Instead, they call for more government intervention - Trump for tariffs and Harris for more individual and business taxes and for energy policies that will rapidly make life much more difficult for most Americans.

The stagflation of the 1970s was ended by Jimmy Carter's deregulation initiatives, Paul Volcker's end to inflation, and Ronald Reagan's income tax rate cuts.  The economy rebounded nicely and grew to astounding levels.  Unfortunately, the lessons of the early 1980s have been lost, and all of us will pay a price.

~ William L. Anderson, "The Great Retreat: How Trump and Harris Are Looking Backward," The Misesian, September-October 2024

Kevin Duffy on investing in China

Long-term, China is hated for all the right reasons: economically successful, minds its own business, refuses to kowtow to the U.S. and is too big to attack.  In addition, China boasts a smart, hard-working, entrepreneurial culture that values education and has avoided some of the toxic ideologies of the West, like wokeness.  China represents a key control group and geopolitical diversifier.  And it’s on sale.

~ Kevin Duffy, "Portfolio Review," The Coffee Can Portfolio, p. 19, October 22, 2024

Kevin Duffy on being a long-term investor

As a long-term investor, I get far more excited about the quality and number of seeds being planted than the size of the annual harvest.

~ Kevin Duffy, "Portfolio Review," The Coffee Can Portfolio, pp. 15-16, October 22, 2024

Kevin Duffy on competitive edges in the investment business

The keys to the investment business are developing competitive edges and finding clients who will allow you to apply those edges over time.

~ Kevin Duffy, "Fade to Black," The Coffee Can Portfolio, p. 14, October 22, 2024

Kevin Duffy on the Dalbar effect

The dirty little secret of the asset management business is that the sophistication level of one’s clients is paramount.  If they constantly chase what’s hot and panic out of what’s not, all the hard work by the portfolio manager can be negated.  I refer to this pesky boat anchor as the “Dalbar effect,” after an annual study by Dalbar, Inc.  In it, they document how actual investor returns deviate significantly from published returns due to the poor timing of a firm’s clients.  

Aggressive marketing and client quality are inversely related, although Dalbar is unlikely to admit this to their institutional investor clientele.  BlackRock is no doubt an asset gathering machine, but where are the customers’ yachts?  According to my calculations, over the past ten years BLK’s all-important equity iShares franchise (32.5% of base fees in Q3) suffered a headwind (Dalbar effect) of 5.3% per year.  This effectively cut published returns in half.

~ Kevin Duffy, "Fade to Black," The Coffee Can Portfolio, p. 12, October 22, 2024

Kevin Duffy on the passive bubble

Over [the past 10 years], a staggering $6.0 trillion has poured into passively managed funds, with $2.3 trillion pulled from active funds.

~ Kevin Duffy, "Fade to Black," The Coffee Can Portfolio, p. 10, October 22, 2024

Kevin Duffy on technology waves

Technology waves are like hurricane warnings: those who go through them suffer from recency bias.  As the most recent experience is seared into their brains, they swing from underprepared to overprepared for the next one.  The internet altered the economic landscape, wreaking havoc on some and heaping fortunes on others.  (Many of the big winners, including Google, Facebook, Netflix and Salesforce, weren’t even public companies in 2000.)  No one can fault the current crop of high-tech CFOs for clamoring to ride the current AI wave.

~ Kevin Duffy, "Countervailing Forces," The Coffee Can Portfolio, p. 5, October 22, 2024

Kevin Duffy on investing: using the past to inform the future

But enough about the past.  Investing, to paraphrase Danish philosopher Søren Kierkegaard, must be understood backwards, but lived forward. 

Where some see randomness and others statistical certainty, the economic historian and forward-looking investor sees patterns and probabilities, motivations and biases, individual calculation and group error.  At times, and to no one’s surprise, guesses about the future can diverge wildly.

~ Kevin Duffy, "Countervailing Forces," The Coffee Can Portfolio, p. 3, October 22, 2024

Kevin Duffy on writing about politically sensitive topics

I realize taking on politically sensitive topics like Covid, wokeness, China and the Israel-Palestine conflict risks turning away subscribers, but it is a risk I’m willing to take. The last thing the world needs is another conventional, politically-neutered investment letter.

~ Kevin Duffy, "Mailbag," The Coffee Can Portfolio, p. 22, October 22, 2024

2024

Henry Hazlitt on government spending

Everything we get, outside of the free gifts of nature, must in some way be paid for.  The world is full of so-called economists who in turn are full of schemes for getting something for nothing.  They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because ‘we owe it to ourselves.’ 

~ Henry Hazlitt

William Casey on the CIA

We'll know our disinformation program is complete when everything the American public believes is false.

~ William J. Casey, CIA Director (1981)

Phil Grant on declining profitability in the asset management industry

Profitability at asset managers has slipped for the past two years and is likely to decline further through 2028 as investors increasingly opt for products with lower fees, such as exchange-traded funds (ETFs), according to a new study. 

The study of 40 global asset managers including BlackRock, State Street, JPMorgan and Goldman Sachs by German financial strategy advisor zeb Consulting showed their profits in 2023 slipped to 8.2 basis points (0.082%) of assets under management from 10.1 basis points in 2021 and 9.4 points in 2022.

"The good years are over for now," zeb senior consultant Fränk Hamelius, one of the study's authors, said on Monday.

Over the past five years, the assets under management of the firms studied have risen by 8.8% annually on average, but their operating profits have only gone up by 0.7% per annum, it said.

~ Phil Grant, Almost Daily Grant's, October 21, 2024

Brad Gerstner on ChatGPT

We've seen a big lift, the fastest growth at any company I've ever seen at OpenAI, so it's clear it offers value.  200 million weekly average visitors are saying about ChatGPT, "you're valuable enough to me that I'm going to open this thing every week... and I'm going to use it to help me with whatever task I need to complete."  If I look out onto my floor here, all my analysts - every single one of them - they have three screens in front of them and one of the screens is open to ChatGPT.  That is their co-pilot...

I've lived through four super-cycles.  We've lived through internet, lived through mobile, lived through cloud and now we're at the start of the fourth one which is AI.  I have zero doubt it will be bigger than any one of those, and maybe bigger than them combined over the next two decades.  When we go from computers and AIs that really co-pilot our lives to auto-pilot our lives.  They're going to be machines interacting with machines on things like airline maintenance that just do it better than humans.

~ Brad Gerstner, "Why This Investor Doesn't Just Dabble In the Market," The Meb Faber Show, 22:50 mark, October 4, 2024

David Gordon on the Hamiltonian and Jeffersonian visions of America

Most readers of the Mises Wire will be familiar with the account of American history developed in many books by Mises Institute President Thomas J. DiLorenzo.  According to him, American history since our founding as a nation has been shaped by two conflicting traditions: one, begun by Alexander Hamilton, favoring a centralized government and the other, best personified in Thomas Jefferson, supporting decentralized government and the rights of the states and local communities.  Hamilton favored building up American industry artificially through high tariffs, as well as a national bank and a system of costly “national improvements.”  He also supported high government debt to stimulate industry.  Jefferson opposed all of these measures.  Henry Clay’s “American System” continued the Hamiltonian plan, as did Clay’s follower Abraham Lincoln.  In the twentieth century, Franklin Roosevelt’s “New Deal” fits into this paradigm. 

~ David Gordon, "Alexander Hamilton's poisoned legacy," Mises Wire, July 19, 2024

Abby Joseph Cohen on highly educated immigrants in the U.S.

Two-thirds of the Ph.Ds working in the U.S. in medicine and engineering are immigrants.

~ Abby Joseph Cohen, business professor at Columbia University, Barron's Mid-Year Roundtable, July 13, 2024

Tianchen Xu on expected fiscal stimulus measures in China

Our overall take is quite positive in that MoF is willing to tackle China’s many economic challenges by leveraging its borrowing room.  The immediate benefits to the economy will be limited, as the MoF avoided large-scale direct cash handouts to households.  However, its commitment to restoring local public finances through fiscal transfer and debt replacement is highly commendable. 

In the medium term, it will put an end to the aggressive deleveraging by local governments and ease the resulting deflationary pressure.  And as their financial position stabilises, local governments will be better positioned to support the economy by providing public services and embark on public investments.

~ Tianchen Xu, Senior Economist, Economist Intelligence Unit, "China's briefing on stimulus gets lukewarm investor reception," Reuters, October 12, 2024

(Xu reacted to news conference with Finance Minister Lan Foan announcing more "counter-cyclical measures" this year without providing details on size of fiscal stimulus.)

Lauren Templeton and Scott Phillips on bargain hunting in the stock market

The thrill of locating more bargains should be far more rewarding than sitting back and relishing your recent successes.  This idea is embedded in the notion that focusing on the future is more important than focusing on the past.

~ Lauren Templeton and Scott Phillips, Investing the Templeton Way

2008

Jim Grant on value investing

It's an arithmetic truism that bearishness prepares the ground for bullishness; nothing succeeds in the long run like a low entry point.

~ Jim Grant, "Tale of two decades," October 11, 2024

Brendan Ahern on how global investors are underweight Chinese equties

Bank of America does a global portfolio manager survey and they say to mutual fund managers, "what are your favorite trades?"  The #1 trade was [long] Mag 7 and the #2 trade was short China.  And so a lot of that short selling was in Hong Kong and ADRs.  So offshore China...  So those investors who were short China just got run over...  But more importantly, why you're seeing this reaction is that investors globally have been very underweight China.  China's economy is $18 trillion GDP, but India at $3.5 trillion actually was a bigger part of global indices...  It makes no sense, but it just shows there's this incredible underweight Chinese equities globally.  Some of that money that came out of China went into U.S. tech or India or Japan and what you're seeing is a re-rating back in...  That supertanker of underweight doesn't turn on a dime.

~ Brendan Ahern, "Don't Believe the China Boogeyman Narrative," Stansberry Investor Hour, October 7, 2024

Kevin Duffy on the Left and Right

Both sides engage in different forms of tribalism.  The Left is at war with the rich.  The Right is at war with various boogeymen around the world.  Left and Right are at war with each other. 

The state absolutely THRIVES on tribalism.  It's like oxygen.  "War is the health of the state." 

~ Kevin Duffy, tweet, October 9, 2024

Marcus Stanley on $1.6 billion House bill to deliver anti-China propaganda overseas

Since at least 2016, foreign interference in American elections and civil society have become central to American political discourse. The issue is taken extremely seriously by the U.S. government, which has levied sanctions and called out foreign adversaries for sowing “discord and chaos” through their propaganda efforts. 

But apparently Washington takes a different view when it comes to American propaganda operations in foreign countries. On Monday, the House passed HR 1157, the “Countering the PRC Malign Influence Fund,” by a bipartisan 351-36 majority. This legislation authorizes more than $1.6 billion for the State Department and USAID over the next five years to, among other purposes, subsidize media and civil society sources around the world that counter Chinese “malign influence” globally. 

That’s a massive spend — about twice, for example, the annual operating expenditure of CNN. If passed into law it would also represent a large increase in federal spending on international influence operations.

~ Marcus Stanley, "House passes $1.6 billion to deliver anti-China propaganda overseas," Responsible Statecraft, September 11, 2024

Brendan Ahern on the false China narrative

In general, Western media is a source of disinformation.  It’s not a good source for what’s going on [in China]…  Business people and investors have been getting along just fine and the diplomats from both sides have not.  I think the media plays with what DC wants.

~ Brendan Ahern, "Don't Believe the China Boogeyman Narrative," Stansberry Investor Hour, October 7, 2024

Joseph Goebbels on propaganda

Propaganda works best when those who are being manipulated are confident that they are acting on their own free will.

~ Joseph Goebbels, Minister for Public Enlightenment and Propaganda in Nazi Germany

Jerry Kuhlman on Pete Rose, R.I.P.

RIP Mr. Charlie Hustle! 

We were in Vegas on our way to Bryce and Zion and I saw that Pete Rose was signing autographs at some casino in town.  He was my Dad's and my favorite because of the way he played the game.  I wanted to get a pic with him and send it to my Dad for Father's Day.  So I convinced my family to go the next day.  I spent the night before preparing what I wanted to talk to him about, specific plays etc. 

We got there just before they closed, and you could tell he was getting tired of signing.  I was the last person they let sit with him.  He didn't look up at first. 

- I brought up the way he ran out Walks.  ("One in a million times they drop the ball and I'm on second, maybe third.")  He started getting fired up. 

- I brought up the play where he caught the foul ball in the World Series after it popped out of Boone's glove.  I said he would've backed up that play even if it was a spring training game ("because, that's how you play the game") 

- Astros Series... play at the plate.  Took the catcher out like you could then. (" only time I went through a "stop sign" from the 3rd base coach) 

- then he started telling me stories.  It was the best!  They said they had to close the store, but then I said, see my son over there?  His name is Kyle.  I wanted to name him Pete Rose Kuhlman, but my wife wouldn't let me.  He stared down Kim, then laughed. 

I know he wasn't perfect off the field... who is?  If you have an opinion on that, don't post it on my page.

No one PLAYED the game harder.

~ Jerry Kuhlman, Facebook post, September 30, 2024

Kevin Duffy on Pete Rose, the Baseball Hall of Fame and the steroids era

Q: I have been watching a Pete Rose documentary on Max and I have to say there is something wrong with that guy.  He definitely is a gambling addict.  What are your thoughts on him being in the Hall of Fame?  I feel like he should for what he accomplished and how he played the game.  That is a far cry from guys who did steroids and cheated every day and are on the ballot! 

A: Rose definitely deserves to get in on merit, first ballot HOFer.  I might let him in after 20 years.  That's enough punishment for what he did.  We're all human so I'd err on the side of forgiveness.  As for steroids, practically everyone was doing it and the league looked the other way (they benefitted big time from the explosion of HRs).  I'm not a fan of making a few visible guys like Bonds, Sosa, McGuire, Clemens the scapegoats.  

There is no doubt in my mind that Barry Bonds and Roger Clemens belong in the HOF.  Bonds will be inducted this summer.  Clemens has failed to make the cut 10 times.  I have little doubt that he would've been a first ballot HOFer had he not used steroids. 

Q: I would agree about forgiving Rose.  He is an old man now and has served his penance so let him in.  The steroid guys were the best in their era but would they have been without the juice? 

A: a) I think steroid use was pervasive and b) the crackdown was largely after the fact.  There was a big window where this was all new, the adverse long-term effects not known and the rules not crystal clear and enforced.  On top of that, incentives matter.  Initially the league looked the other way because they benefited and didn't want to believe it would harm the athletes.  Kind of reminds me of concussions and football.  This was a systemic problem which is why I'm opposed to singling out a few individuals and have them take the fall.  For any organization, the best they can do is to admit a mistake, clean it up and move on.  Take responsibility!  After all, we're all human and make mistakes.  I think most fans will relate, appreciate the honesty and forgive.

~ Kevin Duffy, email exchange, September 24, 2024

Hans-Hermann Hoppe on Javier Milei

From the point of view of an anarcho-capitalism, which he claims is his philosophical conviction, he is of course a disaster.

~ Hans-Hermann Hoppe, "What to Make of Milei," LewRockwell.com, October 3, 2024