Macro

Everyone was happy to buy 18-24-36 months ago, when the horizon was cloudless and asset prices were sky-high. Now, with heretofore unimaginable risks on the table and priced in, it’s appropriate to sniff around for bargains: the babies that are being thrown out with the bath water. We’re on the case.

The hoped-for results might materialize, or the negative consequences might be felt, or some combination of the two. It must be borne in mind, however, that whereas the negative ramifications from tariffs will probably be felt almost immediately, any gains are likely to come only in the long run, following a multi-year period of adjustment.

Japan exploited its advantages in producing autos, and the U.S. moved on to things in which it could achieve an advantage of its own. Isn’t that exactly the way things should work in a dynamic global economy?

As I asked in a memo in September, is it a good idea for governments to try to override the laws of economics in an effort to cause their eco... See more

In the 1980s, people like [Trump’s counselor for trade and manufacturing] Peter Navarro decided that Japan pulling ahead of the US in autos threatened the future of the U.S.

Japan did indeed pull ahead and never looked back.

The U.S. economy has more than doubled in size relative to Japan since then. It has doubled even after allowing for population ... See more

If only it were that easy. The problem is that in the real world, and especially in economics, there are second- and third-order consequences that must be considered. If there weren’t, economics would be dependable like the physical sciences, as in “if you do A, then B happens.” As theoretical physicist Richard Feynman said, “imagine how much harde... See more

There was nothing anyone could say they “knew,” and that included me. I was limited to gaming out my conclusions, which were as follows:

• we can’t confidently predict the end of the world,


• we’d have no idea what to do if we knew the world would end,


• the things we’d do to gird for the end of the world would be disastrous if it didn’t end, and


• most of the

... See more

I thought I should comment on these developments and the outlook, and the result was a memo called Nobody Knows, published four days later. I affirmed my ignorance of the future as usual, but to an even greater degree given that all prior expectations had been upended. Nobody knew – especially me – whether the spiral could be arrested. Nevertheless... See more

To sum it up in very basic terms, USD liquidity increases and decreases under the following circumstances:

USD Liquidity — Number Go Up:

Fed Balance Sheet — Increases

RRP Balances — Decreases

TGA — Decreases

USD Liquidity — Number Go Down:

Fed Balance Sheet — Decreases

RRP Balances — Increases

TGA — Increases

Right on schedule, just like almost every other year, it will be time to sell in the late stages of the first quarter and chill on the beach, at the clerb, or on a ski resort in the southern hemisphere and wait for positive fiat liquidity conditions to re-emerge in the third quarter.