“It is perfectly true, as philosophers say, that life must be understood backwards. But they forget the other proposition, that it must be lived forwards.”
— Soren Kierkegaard
Hard as I’ve tried to banish Kierkegaard from these pages, he keeps popping up.
He died in 1855, and the proper thing to do is to allow him to rest in peace. But, in addition to this widely read publication, his presence remains ubiquitous – on platforms such as tiktok, Insty, Etsy, Hulu and wherever else the hipsters roll and keep secret from us old fokes. His visage graces coffee mugs, bumper stickers every other form of merch. Like the Kardashians and the re-nuptialized Bennifer, the more we try to ignore him, the more he forces us to contend with him.
When he last haunted these pages, it was owing to his observation that in this world, it’s best to either do something or not do it, because you will regret either choice. True enough, but this time, another dichotomy in his catalogue emerges – the oxymoronic notion that while time only marches forward, the choices we make are, substantially and necessarily, based upon information gathered from instances, eras and epochs that have passed us by.
Welcome, my friends to the show that never ends: the world of Risk Management, where those who presume to ply their craft are expected to anticipate future ranges of outcomes, with only what has already occurred to use as effective guidepost.
What would you have us do? Predict the future and then share the results with the rest of y’all? I ain’t gonna say whether we have achieved the former (or not), but obviously, if we have, we’re keeping it to ourselves. I will let you in on this much: though it has never occurred to a single one of you, us risk managers wouldn’t mind banking some coin for ourselves once in a while.
At any rate, the need to live forward while looking backward strikes me as being a particular plague for our Central Bank. Perhaps this is fitting and proper, because: a) the Fed typically brands itself as gestore del rischio di tutti gestori del rischio (risk manager of all risk managers); and b) relative to the power it wields, its senior staff appears to me to be similarly underpaid.
This past Friday, perched at a podium high up in the Teton mountains, its chief, er, philosopher, one Jerome Powell, delivered an eight-minute wallop to the markets that I believe was as impactful as any such set of remarks delivered in that setting in a decade – dating back to J-hole ’12, where Powell’s predecessor’s predecessor – Ben Bernanke, announced QE3. At the time I redesignated QE-Infinity — insomuch as it was a QE that was unparameterized in terms of magnitude and duration. In eerie foreshadow, it transpired ~10 weeks before an extremely important election, and I have always believed that it went a long way towards insuring a second term for Barack Obama.
This time, though the venue was identical, the players have changed, and the polarity has, by all appearance, reversed itself. In 2012, Big Ben giftwrapped a big ole love bucket for Barack. In 2022, subsequent developments may unfold such that Joltin’ Jay has landed a body blow to his presumed pals down The District: Joe and Janet.
While neither Jay nor any of his professional forebears (this side of Volcker) have been particularly known for their clarity of message, this time there was little room for ambiguity of interpretation. He reinstated his organization’s longstanding (but tragically relaxed) inflation target of 2% — in an environment where, depending upon the measurement one prefers, the current rate is somewhere between 7% and 11%. He emphasized this point by acknowledging the sacrifice and economic hardship needed to achieve this objective. Said he didn’t care. Told us we’d have to do it anyway.
Channeling his inner Kierkegaard, he made reference to the monetary policy mistakes of the 1970s, during which time (he believes) we failed to fully exorcize the pricing demons because we ended tightening cycles pre-maturely. Not gonna happen this time, he tells us.
So, Powell is moving forward in hawkish assault, swooping down on soon-to-be-hatched Inflation eggs and other avian fondlings before they fill the skies. To the extent he was looking at what has recently transpired, he’d see economic data that included a reconfirmation of negative Q2 GDP, a housing market that is showing alarming cracks, a collapse in global service PMIs, Brent Crude climbing back over $100/bbl, Nat Gas at all-time highs, EURUSD at below parity, and any number of other issues sufficient to tax the fortitude of even the heartiest of monetary bureaucrats.
Deciding how to move forward based upon all this backward stuff strikes me as being a formidable challenge. But the good news is that it’s his problem; not ours. Until, that is, it isn’t.
If Powell appeared dour and humorless up there in J-hole, perhaps he should seek to cheer himself with a visit to the White House and Capitol Hill, where they’ve had quite a month and are justifiably giddy about it all. Over the course of August, the ruling party has gathered itself to transfer yet another > $1.5 Trillion of our money into their control. They have sourced ~$300B to give to highly profitable chip makers to spend in their districts. They ginned up >$600B for the Sacred Cow of Green Energy development. I really don’t want to tread too heavily on the tiresome topic of the latter but I do think that the commentary, published in the attached WSJ column and authored by Mark Mills of the Manhattan Institute is worthy of consideration:
https://www.wsj.com/articles/why-the-energy-transition-will-fail-11661547051
They saved the best for last (that is, under the dubious premise that they are done), by cancelling >$500B of student loan debt. Now don’t get me wrong – I am not some Dickens character disapprovingly wagging my finger at those who presumed to borrow for the purposes of selfimprovement. But there is so much wrong here that I would not even begin to capture it in this family publication. But perhaps the following visual will offer some insight at to who stands to benefit:
The threshold for qualifying for this relief is nearly double the annual salary of the average American; nearly 4x for those who are married/have a family. Presumably, they will finance at least a portion of this largesse through stepped up tax collection, as enforced by nearly 90,000 new IRS agents tasked with ensuring that not a penny of what we owe our public servants slips through the cracks.
Maybe free handouts for Silicon Valley Billionaires, Fossil Fuel Antagonist/Vigilante Capitalists, and former college attendees earning up to 10x the Poverty Line will indeed purchase enough votes this November to keep the progressive boat afloat. We can be pretty certain that this is what it’s all about. On the other hand, it could all backfire. Spectacularly.
We can only hope.
I could take it all in stride if so much of the money weren’t being allocated to scolding me and my antecedents for our unpardonable sins, to limiting my future economic prerogatives, and, of course, to auditing my ass (probably more than once).
But it sets up for a continued tough slog in the markets. Inflation may come down, but there’s NO WAY we get to 2% without a deep recession. Interest rates are going substantially higher, and I think the housing market – already injured, will be the first of the fallen. The ex-Goldman centimillionaires who run the SEC are cooking up so much impairment for traders and investors that it takes over a thousand pages to describe them all.
But if I have learned anything in my > 6 decades on this planet it’s not to draw definitive conclusions about anything in late August. So, I’ll reserve judgment as to what unfolds after Labor Day until, well, after Labor Day. Not much is likely to transpire in advance of this, though I do hasten to remind readers that due to the quirks of the calendar, the important August Jobs Report comes out this Friday, right before the three-day holiday weekend.
After that, we will continue move forward while looking backward. School will be back in session at all levels, offering me renewed cause to regret having paid back my student loans.
But I think I can still draw insights into the future from what transpired before.
It was in college, after all that I first encountered Kierkegaard. Who earned a Masters of Arts in Philosophy from the University of Copenhagen. In 1841.
It is not known, at the point of this writing, whether he borrowed money to finance his degree, or having done so, what assistance he received from the King of Denmark in discharge of same.
It was in college that I also read a play about another member of Danish royalty. It was a tale told by an idiot, full of sound and fury…
Signifying nothing? True, that story didn’t end well. As for the rest of us, it could go either way. Or both ways. Which I guess is my point. Unless it isn’t.
Because I don’t remember the past and can’t predict the future. Or maybe I have it backwards – I can’t predict the past and don’t remember the future.
And if that doesn’t kill Kierkegaard once and for all, I suspect that nothing will.
TIMSHEL