The Conceit of the Living
What one generation learns, another is quick to forget...
Bill Bonner, reckoning today from Poitou, France...
"We do not merely study the past: we inherit it, and inheritance brings with it not only the rights of ownership, but the duties of trusteeship. Things fought for & died for should not be idly squandered. For they are the property of others, who are not yet born."
~ Roger Scruton
This week, we are working our way through the good news. Yes, we are in high clover. And like a cow that jumped the fence, now gorging itself on the rich grass, it is fun…until the ‘bloat’ kills us.
This morning, on a news program, we saw our old friend Nassim Nicolas Taleb. He warned that there was going to be hell to pay from “fifteen years of zero interest rates. Almost a whole generation forgot that credit has a price. Now, they’re finding out again. It’s going to be painful.”
“As much money as we want”
In the US, the pain has scarcely begun. But as Tom told us yesterday, we can get a preview of it by looking at what is happening in England. Here’s the latest from Bloomberg:
Britain’s mortgage market has become a horror show for borrowers and the government as soaring interest rates threaten to leave households destitute and the economy on the rocks.
… Inflation is cooling only slowly, forcing the central bank to go hard on Thursday with a bigger-than-expected hike that took the key rate to 5%.
…The squeeze is eating into incomes, taking away money that might otherwise be spent in stores, bars and restaurants, creating a drag on an economy forecast to grow just 0.2% this year. Only Germany is expected to have a weaker performance among major developed economies.
Taleb: “My advice to investors is to get out of the big AI Tech stocks…and stay away from real estate. “
“But we’ve got the world’s reserve currency,” protested the interviewer. “We can print as much money as we want.”
Bordeaux, Burgundy and Bubbles
We’re in France, at a ramshackle chateau we bought nearly 30 years ago. We lived here for more than a decade. Now, we come back to paint the shutters and reassemble the family. The house is big. So, there is plenty of room for our six children and their growing families.
So far, we have only one grandson with us. At 15, he is the oldest of the grandchildren. He’s learning to speak French from a neighbor, learning rough carpentry from his grandfather…and how to ‘faire la bise’ (greeting people in France by kissing them on both cheeks) from his grandmother. Most importantly, we are teaching him vital life skills, such as how to tell a bottle of Bordeaux from a bottle of Burgundy...and how to spot a bubble market when he sees one.
But the Fed has paused. We will take a ‘pause’ of our own. It is a bright, summer day in rural France. Not too hot. Not too cold. There are birds in the trees and lovers, we suppose, in each other’s arms. So, we will sit, like a retired writer in the sun, and take stock.
Our goal here at Bonner Private Research is to ‘connect the dots.’ But there are millions of them…as many as the stars in the night sky. How to make sense of them? We end up looking at clusters…and constellations…groups of them that seem to have a pattern or shape.
And hanging over the whole firmament is an insight…a bright light that guides us through the news like a prisoner of war through a minefield.
We are, after all, our fathers’ sons and daughters. And they were the sons of their own fathers and mothers. Each generation had its ideas…its goals…its sense of right and wrong. What makes us think that we are so much smarter than all of them?
They put up monuments. We tear them down.
They believed in free speech. We believe in censorship.
They believed in free markets. We believe the government should control the economy.
They believed boys will be boys and girls will be girls. Now, we think they can be anything they want.
For 150 generations, they regulated and protected capital with interest rates; but for the last 15 years our geniuses pretended that they didn’t matter.
In 1990, US Secretary of State James Baker assured Mikhail Gorbachev that Western powers would advance ‘not one inch’ towards Russia. But a generation later, US tanks, drones, and spy satellites are all helping to kill Russian soldiers.
One generation was racist. Another thought racism was bad. Now we are self-righteous racists again, ready to give special privileges to special groups.
One generation believed that deficit spending was practically a sin. Later generations piled up $32 trillion in debt.
One generation believed the ‘Nifty Fifty’ stocks were “one decision” investments. You buy. You hold. You get rich. The next generation thought the dot.coms would make them rich. And now, it is the AI-powered super-Techs.
Each generation is delusional in its own way, ready to pay absurd prices for its favorite assets…and commit murder for its favorite cause. It is what we call the Conceit of the Living, the belief that our ancestors were all imbeciles…and our descendants will thank us every day for leaving them with the Final Truth.
But ‘pride goeth before the fall.’ Fads and fashions change. Which will fade? Which will endure? What will the Big Techs be worth 5 years from now? And how about America’s $100 trillion of real estate. It is priced for a world of 4% mortgages. What will it be worth when investors realize we are in a 7% world?
Let’s return to connecting those dots on Monday.