It is not ideas, but experience that changes the world.
Milton Friedman
I continue to gather myself for the fight, but at times it proves to be too many for me.
As an ominous sign of same, upon a recent trip to the Chicago area, I had occasion to visit a dispensary. I won’t stoop to the indignity of stating anything beyond that I did not run this errand on my own behalf. Even though I did. And it wasn’t.
The sequence was, as far as these affairs go, rather routine. They ran my drivers’ license through a machine, ushered me into the show room, where a helpful young gentleman guided me through the choices, and I made my selection.
The cashier rang me up, and then it all fell apart. The manager stepped in and applied a Senior Discount to my transaction.
Though it stands not alone, the prospect of paying a reduced rate owing to my advanced years — at a friggin marijuana dispensary — is yet another sign that maybe, just maybe, I have lived too long.
Inside, I was mortified, but I tried not to show it. And I extracted my revenge. By going into a long reminiscence about $10 Mexican Lids — stuff you could burn all night and not even be really stoned.
And of wakings up with a raging headache.
The staff listened politely, but I sensed that they had heard it all before. So, as I exited the premises (located, by no mere accident I suspect, immediately next door to the iconic Lovin’ Oven Bakery), it occurred to me that I ought to consider myself doubly blessed. Because not only did I walk away with more jack in my jeans than the youngbloods who presumably comprise the enterprise’s core clientele, but also because I’m pretty sure that the stash I copped was grown and processed domestically. Had this been a tale of my above-mentioned Mexican lids: a) my $10 bag would’ve set me back $12.50, and b) no Senior Discount would’ve been available.
I’ve no doubt, though, I would have been much less buzzed, because (so I’m told), today’s shit is innumerable orders of magnitude more potent than the stemmy, seedy leaf that we sucked through those home-made bongs made of stacked beer cans and duct tape years ago. And my mood (if in fact I was gonna partake, which I wasn’t and didn’t) is now certainly more in want of altering than in the bizarre world of 50 years ago.
Which – trust me – was a pretty fucked up time. The country had just managed to torpedo that slippery Nixon out of the White House, and, a world away, our army was busily pushing our helicopters into the South China Sea, so they wouldn’t be delivered to the Victorious Viet Cong. Inflation had reached double digits the previous year, and Nixon’s successor, the well-meaning but capability-constrained Gerald R. Ford, responded by handing out WIN (Whip Inflation Now) buttons.
Looking back, it’s no wonder we were stoned all the time.
And the headache lasted for years. Soon thereafter, the Middle Eastern shit hit the fan. The Iranians attacked our local embassy. Oil prices quintupled. There were gas lines. Inflation and Interest Rates hit the high teens. By the time I copped my bachelor’s degree, the weed quality had vastly improved, but the future, for a young buck sporting a Badger Math diploma, looked anything but promising.
I did not share this much of my personal history with the dispensary staff, thinking that if I did, they’d soon send the wagon with the butterfly nets after me. Besides, they’ve problems of their own.
Here’s hoping that the powerful Sativa and Indica which they ingest are offering some much-needed relief. Because I don’t envy them the road they must travel to shape the future. I often tell them, it’s your turn. My generation had its go at it, has done an indisputably creditable job of bitching everything up, and must now pass the torch.
As is often the case, the financial markets offer an insightful, if presently unreadable, madness barometer. Y’all know what happened last week: the deepening of a frightening selloff followed by a one-day recovery that proved to equate to the largest single session valuation gain in market history. The week ended with some bi-directional careening. Perhaps most improbable of all, the panic liquidation of equity markets did not devolve to the benefit of the heretofore thought to be rock solid Treasury Complex. Quite the opposite. Which is kinda funny insofar as it seems like it was only a couple of weeks ago, we were celebrating the first decline below 4% in 10 year yields all year.
Because we were. But now? Hello 4.5%. And, just as the prime housing season unfolds in earnest, welcome back to > 7% mortgage rates.
I am unsurprised, and in fact perversely encouraged, by the confusion exhibited by cross-asset class investors, as I believe it to be justified. Tariffs? Yes. But the issue transcends this dubious episode, involving, as it did, an aggressive, unilateral assault by the Administration on the delicate protocols of International Trade. Upon grasping that these were not well-received by the Global Financial Economy, the Administration backed off, declaring, inevitably, in doing so, a glorious victory in the action. But NGL – it looks to me to be about as much of a victory as our bailing out of Afghanistan a couple of years ago, with all them poor schlubs running beside the plane, several of our soldiers executed, and billions of dollars of cash and hard assets left behind.
Then of course, there’s China, with whom we are engaged in a war of tariff-hysteria, taking the rate on each side to >100%. Seeing as how the two-way trade runs to more than $1 Trillion, it amounts to a >$1T tax/transfer of resources from private entities to the sponsor governments.
One need not look very far to unearth arguments that the Chinese economy, weaker than ours, cannot withstand this heat. To which I respond that we’re talking about a dictatorship that has never gone more than a generation or two without executing a purge which killed and/or crippled millions. Meantime, here in the U.S. we become enraged at even minor inconveniences. Our equivalent of the Great Leap Forward – which may have taken out as many as twenty millions of their population – is being kept on hold for more than five minutes with our cable providers.
I am thus not quite sure we have them quaking in their boots just yet.
Though I’m reluctant to dive into this rabbit hole, it is also a matter of considerable debate as to whether or no trade deficits redound for good or ill. My own belief is that they’re OK. Not great, but OK. It’s certainly true that we ourselves are subject to considerable tariffs and that we import more than we export. But I believe that our consumer culture supports the notion that we can live with these conditions. Most of the jurisdictions with which we do business suppress consumption, reserving material portions of their output to feed the avaricious appetites of Americans. They make do with less, but their companies are better off, and their jobs are more secure.
But make no mistake. As illustrated in the following graph, we are the undisputed Consumption GOAT:
Pretty impressive to have copped 5 of the top 10 spots, particularly given that we are < 5% of the world’s population. And, if the modelers at statista can be trusted, we will soon be at 6.
In order to break these chains, we must meet these countries on their own ground, raising the question as to whether, in order to eliminate an obtuse deficit about which few would know or care about absent the media onslaught, as to whether we willing to do with fewer foreign cars? With higher home construction costs to avoid buying all that Canadian lumber? With lower quantities/higher costs of meds and microchips emanating not only from China but also from other East Asian nations?
I doubt we have the desire, and if the desire, then the willpower, to cut back on these good things, produced, as they are, beyond these shores.
All of which has inevitably confused economic agents of every stripe. Investors are beyond puzzled. And rightly so, because this is one of those unfortunate intervals where they are facing not narrowly defined market risk but rather the more broadly rendered economic risk.
And, as I have pointed out multiple times recently, when we enter these higher realms of exposure, it tends to have a deleterious impact on ALL forms of economic activity. I suspect many of us are feeling the heat even now.
Is this, for instance, the best time to purchase a new home or auto? To start a business? To make a potentially hazardous, potentially lucrative career change? Didn’t think so.
But for the present, our magnificent partakers of everything under heaven appear to be in a stoner stupor, as evidence by the University of Michigan’s Consumer Sentiment Report, issued on Friday:
In defense of those brilliant Ann Arbor surveyors, we’re less than a fortnight beyond the town’s ritualistic Hash Bash celebration, which this year took place on April 5th. If, still feeling the effects, local responders responded to the questions put forward to them with a red-eyed groan, perhaps they can be forgiven their lethargy.
But enough about them, because U-Mich is the enemy, having most recently reinforced this by taking out my Badgers in the B1G hoops finals.
And, as for the market risk, well, this truth should be self-evident. If the broader economy sneezes, the markets themselves will catch cold. I don’t think this is over and won’t be until (unless) there is a coherent set of policy protocols. Even if they’re bad ones, they would be better than what we have in place at present. Which is nothing discernible. The Administration certainly had an idea to remake (though no one asked them) to remake the Global Commercial Economy, but, as Friedman observed, it is the experience of same, that will change the world. I suspect that we’ll continue to hear warblings about how swell this is working, how countries are lining up in desperation to do a trade deal – any trade deal – with us.
But whether it all plays out for good or ill remains to be seen, and meantime, the risk of the latter outcome is, in my judgment, palpable.
I would thus urge incremental caution with respect to the treatment of your portfolios.
Surely America has endured sadder trials. Last Wednesday was the 80th Anniversary of the Bataan Death March. Three days later, FDR died. Today marks 160 years since the murder of Abraham Lincoln. The latter supported tariffs, but then again, we were at war with ourselves at the time.
We may be again. Soon. At war with ourselves that is. Hopefully, it won’t feature a Bataan Death March.
But, if you hadn’t already discerned as much, I did dig, ever so slightly, into that little purchase I made for someone else. It may have affected my thinking. So, I think I’ll nod off, dreaming of Mexican Lids and hoping that the wakeful headache that awaits me is less severe than those I suffered back in 1975.
TIMSHEL