By: Ken(neth Louis) Grant
“The definition of insanity is doing the same thing over and over and expecting a different result”
— Falsely attributed to Albert Einstein
I would be remiss if I didn’t begin by enthusiastically acknowledging the 100th Anniversary of the passage of the 19th Amendment, which bestowed, nearly six generations after the nation’s founding, the right to vote upon American women. It’s this coming Tuesday, and it would do none of us any harm to spend a moment (or two) honoring the occasion.
Progress of this sort (as one can hardly fail to notice in these troubled times) is: a) often glacial; and b) occasionally comes in spurts. Better late than never, I reckon. And now, a century after we corrected our priginal, unfortunate suffrage oversight, we’re on the possible threshold (Biden win/Dems keep the House) of two of the top three elected offices in the country being occupied by women. Moreover, modest extrapolation (Biden bounces – or is bounced — early, Harris appoints a woman VP – highly likely – and Pelosi still lords (ladies?) over the House) places women in all three.
It will be different, but will it yield altered result? No clue.
And that’s all I have to say about that.
So, let’s revert to our main theme: the dubious definition of insanity, falsely attributed to Einstein. The phrase is beyond trite, and (perhaps more importantly) patently incorrect. For one thing, doing the same thing over and over often leads to different results. Happens all the time (consider, for instance a roll of a single die), so expecting a different outcome from a repetitive action is often entirely rational.
And then what about the concept of practice? Like me playing the opening riff of “Brown Eyed Girl” to my brown-eyed girl? I still bitch it up sometimes, but a lot less than I did before I went through the sequence, in endless repetition — all those years ago.
I’m delighted to point out that Einstein never uttered such foolishness. Never would have. Because Einstein was cool. He came up with The Theory of General Relativity, don’t you know? And he also could shred on violin. If you doubt this, take a listen to the attached sampling of his riffing on Mozart:
I say he shreds, but you can decide for yourself.
And in these crazy times, I thought I’d take a moment to measure our activities against that glib insanity trope, which may be the definition, not of insane, but rather of inane,
For months, investors have engaged in the recurring operation of buying up risk assets. Have been doing so since late March. Since before the lockdowns. The results have been quantitatively different, with the Gallant 500 galloping to new highs: >50% above the depths it reached on March 23rd. You remember late March, don’t you? A time when we still thought that shutting down major portions of the economy might be, er, dilutive to equity valuations?
Most of the recent surge is attributable to Apple, which during this past week Eve-like investors pushed past the Eden-like level of $2T — dearth of new product pipeline and mortal supply chain issues in China notwithstanding. Still and all, it was impressive to observe the Big A cut through the double tril mark like a knife through butter. I remember those much-pined for days in the Autumn of 2019, when it lurched and lunged its way past the quaint-by-comparison $1T mark, being the first enterprise of its kind to have done so. But it is often said (at least in the rarified circles in which I roll) that the first trillion is always the hardest to cop. After that, it’s Duck Soup. I have not had this experience myself, so I guess I’ll just have to take Apple’s word for it. But as the biggest corporation in the world, it is now trading at nearly 40x earnings, and one can perhaps be forgiven for fearing that it’s a tad rich up here.
Same is true of corporate debt, the levels of which continue to rise, serenely and unabatedly, and which is becoming alarmingly expensive to own (though not, of course, to issue). I do suspect, though, that at some point, borrowers and lenders will indeed experience a different result.
We are doing some things different, though. We’re saving more. Individuals (in direct contrast to governments and corporations) are actually paying down debt. There’s something holy in this, and here’s hoping it continues.
We’re also buying up houses to beat the band. This is different. And I wonder if it can last. Mortgage and rent delinquency rates, after a recent surge appear to have levelled off:
Apparently, this data takes some time to compile, and in the meanwhile, I’m gonna go out on a limb and suggest that the July and even August data will show continued improvement. But I do wonder if it’s sustainable. When this strangest of summers ends (as it is doing so rapidly, and in such a bittersweet fashion), we may face a different set of circumstances.
Because as I’ve pointed out in the past, most the recipients of rent and mortgage flows are not in the happy position of just banking the proceeds. Nay, they owe this bread to the man. Who expects to get paid, and is capable of all kinds of nasties when these payments are not forthcoming.
And in case you were wondering, when the rent and mortgage music stops, properties go on sale. Further, as an exemplar of insanity in action, when property listings rise, buyers disappear, and prices drop.
The housing data suggests a surge in purchases among Millennials, and all I can say is it’s about time. They’ve been lollygagging too long in grabbing a piece of the rock. While some of this reluctance is said to be generational/cultural; a major portion of it is certainly fear of the future. Which is surely understandable. I myself am terrified. And I own two houses outright and am 60 years old.
All of which begs the question: will this new/different activity on the part of the young bloods lead to the same result as it has for us geriatrics? Will the investment provide lifelong shelter, succor, financial return? I pray for this to be the case, but I won’t lie. I’m worried that it won’t. Particularly over the next little while. If the going gets tough as the weather turns cold, some recent home purchasers may find (as may also be the case with newly minted owners of AAPL and corporate debt) that they overpaid for the privilege/face myriad problems harvesting its rewards.
Finally, and in terms of matters of state, it’s actually difficult for me to render an assessment as to whether we’re repeating the same patterns over again and expecting a different result. It certainly feels different, but maybe it always has. Felt different, that is. There’s a lot of anger out there, and when this is the vibe, politicians always feed it. They’re feeding on it now. It’s arguably why we give them so much money – voluntarily and otherwise. So, I anticipate increased anger, and, with it, expanded transfers of funds from private citizens to politicians.
One thing we can certainly expect is an unusually overwrought election cycle, and I suspect it will begin to filter into market sentiment once Labor Day comes and goes. I’m not sure it will remove the undying bid for securities, but it should lead to some interesting volatility paradigms. I’d highly suggest that we prepare ourselves for these doings.
My best hope is that the outcomes are split down the middle, as I suspect they will be. The sides are just so far apart – and so angry about it – that I just don’t see much upside in a lurch in either political direction. But we may not know the outcome of the election – in fact MANY elections – for several weeks after the voting window ends. Several Senate seats, dozens in the House, and even the Presidency may be hanging like Dade County chads circa 2000, for an indeterminate period. And won’t THAT be a barrel of laughs – for investors and the electorate in general?
One last point about the election, wearisome though the topic certainly is. Biden’s VP choice may carry significance beyond her gender, her racial characteristics and the material probability that she could become president without actually winning a presidential election. Specifically, if my instincts are correct and we are indeed facing a too-close-to-call outcome across all the important races, then it is entirely feasible that Biden could win, and the Senate end up being a 50/50 proposition. If so, VP Harris would be the deciding vote in the Upper Chamber. Would the Dems dare to eliminate the filibuster under these circumstances? Well, I wouldn’t put it past them.
On the other hand, it probably doesn’t matter much. Because under the scenario presented above, pretty much anyone who Biden selected would likely follow the same script: the script of his handlers.
So, I’m expecting a lot of hijinks once the calendar turns, come what may. We’re in for a rocky ride, and I will need you every step of the way. But this may be hard on you, harder than you can endure.
But we gotta press ahead. Like Einstein. Who always kept his cool and banged away on his chalkboard and fiddle as best as he was able. The rest of us would do well to follow his example.
And, at the moment, the tightest definition of insanity that I can come up with is anyone doing anything and expecting any result.
I wish I could do better, but I’m not Einstein. None of us are. And he didn’t even come up with the phrase to which he is so notoriously, so nefariously, attributed. Let’s give him a rest on that bit of slander anyway, shall we? It’s the least we can do. Maybe we can go further and kill the phrase altogether.
Because repeating his unspoken words is insane, right? It is what it is, and, in the meantime, I’m out.
TIMSHEL