1) I enjoyed this essay by Ted Seides in his Capital Allocators blog/podcast, I Don't Know, in which he underscores the importance of humility when investing:
I ask every guest on the podcast, "What is your biggest investment pet peeve?"
Mine is investors who express absolutes in a world of probabilities. The late Peter Bernstein defined risk as "you don't know what will happen," adding "even when you think you do." There's a fine line that investors walk between conviction and humility, but those who believe they know the future without a shadow of a doubt fall a notch in my estimation.
At the end of my last blog, "Playing for Tomorrow," I shared a series of opportunities and risks that I believe have a greater than 50% chance of occurring. But the truth is I don't know what the future holds. Of course I don't; It sounds so obvious when I say it that way. Yet every day we see market participants behaving as if they do. It's what forms bubbles in markets and what makes for great television on CNBC.
Here's the ironic twist: To make any investment is an act of arrogance... You believe you're right that a stock is undervalued and everyone else in the market is wrong to price it so low. So naturally, investing attracts people with big egos.
Yet, to be successful, this arrogance has to be accompanied by humility – to admit a mistake, stay within one's circle of competence, limit trading, etc. – which is much more rare!
2) 60 Minutes had three interesting stories in recent weeks:
3) Economist Paul Krugman does a good job in three recent columns of discussing the difference between personal versus government debt, the prospects for a soft landing, and the emerging consensus on inflation...
a) Wonking Out: Death, Napoleon and Debt. I never knew that the federal government never paid off the massive amounts of debt it took on to fund World War II. Excerpt:
Whenever I write about debt and deficits, I receive the same letter – OK, not exactly the same letter, but a number of letters with more or less the same gist. They read something like this: "If I borrow money from the bank, the bank expects me to pay the money back. Why isn't the same true for the government? Why can we keep borrowing when we already owe $31 trillion?"
Just about every economist will reply that it's misleading to make an analogy between household and government finances. But it seems to me that we often aren't clear enough about why, perhaps because we don't say it bluntly enough. So here's the difference: You are going to get old and eventually die. The government isn't.
I don't mean that governments are immortal. Nothing is, and no doubt someday America will, as Rudyard Kipling put it, be "one with Nineveh and Tyre." But individuals face a more or less predictable life cycle in which their earnings will eventually dwindle:
And lenders therefore demand that individual borrowers pay off their debts while they still have the income to do so.
Governments, on the other hand, normally see their revenues rise, generation after generation, as the economies they regulate and tax grow...
Governments, then, must service their debts – pay interest and repay principal when bonds come due – but they don't necessarily have to pay them off; they can issue new bonds to pay principal on old bonds, and even borrow to pay interest as long as overall debt doesn't rise too much faster than revenue.
In fact, when governments for one reason or another run up large debts, it is, as far as I can tell, unusual to pay those debts off.
The most famous example, albeit one that many people apparently don't know about, is the debt America incurred to fight World War II. By the war's end, this debt was around 100 percent of gross domestic product – roughly comparable to the debt level today. So how did we pay off that debt?
In this article I'll explain why some economists believe, based on historical experience, that we won't be able to get inflation down without throwing millions out of work and why others don't believe that this history is a good guide, arguing that relatively painless disinflation is possible. I'll also explain why even if smooth disinflation without a major recession is possible, there are major risks that policy will either overshoot or undershoot, so we either get an unnecessary recession or fail to get inflation under control any time soon.
I'm in the camp that believes that bringing inflation down doesn't have to be very costly, although you shouldn't trust any economist who expresses great confidence on this issue. But I'm very worried about the problem of sticking the landing in the face of huge uncertainty about the current state of the economy, possible future shocks like debt default or more Covid dislocations, and the often delayed effects of policies designed to fight inflation. For example, are interest rate hikes precipitating a bank crisis?
My goal, however, is not so much to persuade you of the correctness of my own views as to give you a sense of the factors in play and the state of the debate.
So there's actually a sort of consensus: While much recent inflation reflected temporary factors, the economy is still running too hot and needs to cool off.
The six-million-job question is whether this cooling off needs to involve a large rise in unemployment.
The paper is actually fairly optimistic on that question, suggesting that "immaculate disinflation," inflation coming down without any significant rise in unemployment, may be possible, and that even if it isn't, those grim projections we were hearing a year ago about the need for many years of high unemployment no longer seem plausible.
Why the optimism? B. & B., as I've already noted, use the ratio of vacancies to the unemployed as their measure of labor market tightness. And what has been really striking since late 2022 is that vacancies have come way down without any rise in unemployment.
4) After six wonderful days in Kenya visiting my parents, sister, and nephew, I took the nonstop home Sunday night, landing at JFK yesterday morning, nearly 15 hours later.
That's a long flight, but it doesn't come within four hours of the longest commercial flight in the world right now, which is the nonstop from Singapore to JFK at 18 hours and 50 minutes. (Here's a list of the 10 longest commercial flights.)
I decided not to bid to upgrade to flat-bed business class, which would have cost at least $900, but was pleased with my decision to spend $240 to block out the two seats next to me, so I had a row of three to myself.
The plane was 90% full, but I was able to lie down and sleep for eight hours (not very comfortably, but thank goodness for Ambien!) – and still had seven hours left to catch up on a lot of reading and watch the last three episodes of "The Diplomat," the new Netflix show that I really enjoyed.
After my parents and my trip to go on safari in Amboseli National Park on Wednesday and Thursday (pictures on Facebook here), on Friday I went shopping with my mom – quite an adventure in Kenya! – and went for a long walk in the nearby tea plantations with my parents:
In the afternoon, we went to my nephew's graduation from the International School of Kenya. Congratulations! He'll be starting at Rensselaer Polytechnic Institute (RPI), near Albany, in the fall, so we'll be seeing a lot more of him. (Having lived in Kenya his entire life, we may need to thaw him out this winter!)
Here's a picture of all of us (from left to right, my parents, sister, nephew, me, my sister's ex, and his daughter):
Here's a side-by-side of my nephew and me receiving our high school diplomas, 38 years apart!
I posted more pictures from the last few days of my trip on Facebook here.
