“The debt took 191 years, 1790–1981, to grow to $1 trillion. “A trillion dollars,” the newly inaugurated Ronald Reagan marvelled in 1981 to lawmakers not yet accustomed to 13-figure budgetary line items, “would be a stack of thousand-dollar bills 67 miles high.” Forty-three years later, the gross public debt tops $36 trillion. The trillions come thick and fast, the 36th having arrived on Nov. 21, only 118 days after the 35th—that’s $2 trillion within 322 days..”
- James Grant, Grant’s Interest Rate Observer, 24th December 2024.
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financial review
For those readers not intimately acquainted with modern American wrestling, ‘kayfabe’ is a term of art that acknowledges the staged, scripted nature of the ‘sport’. As Wikipedia puts it,
“As a concept, kayfabe involves both the fact that matches are scripted and that wrestlers portray characters for their shows. Unlike actors who portray their characters only when on set or on stage, professional wrestlers often stay “in character” outside the shows, especially when interacting with fans, trying to preserve the illusion of professional wrestling.”
Our favourite description of current financial markets used to be that they represented a form of Potemkin village; perhaps ‘kayfabe’ comes closer to describing the underlying reality, or rather lack thereof.
If you fancy a live experience of cognitive dissonance, compare the performance of US stocks – especially Big Tech – with US bond yields. 10 year Treasury yields have risen by a full percentage point, from 3.6% to 4.6%, since October. Not everyone is convinced by Trump election euphoria. Elon Musk, of the soon-to-be-created Department of Government Efficiency, has pledged to cut $2 trillion from the budget. That equates to a third of federal spending. But that will also be a tough ask, given that it will require slashing the US defence budget, as well as social security and Medicare, which Trump has vowed to increase and preserve respectively. $2 trillion also equates to five times the combined annual salaries of all federal employees.
Much therefore hangs on the fate of the US dollar. Former trade chief Robert Lighthizer has suggested that dollar devaluation could be a key focus of the new Trump administration. But Trump has also threatened 100% tariffs on countries moving away from using the dollar. The adjective ‘chaotic’ springs to mind.
Not that the chaos began with Trump. It arguably began, or rather went into overdrive, when a country $36 trillion in debt levied sanctions and then froze the foreign assets of a rival nuclear power. When you are so critically dependent on the generosity of foreign sovereigns, this is an unorthodox way of treating them.
We have been here before. James Grant points out that
“From the optimistic vantage point of 1926, Secretary of the Treasury Andrew Mellon made bold to predict that what remained of America’s wartime public debt could be paid off by 1942. He reckoned without Hitler, and the New Deal spending that preceded Hitler.”
Events, in other words. Events. Or as the pugilist Mike Tyson more colourfully put it, everyone has a plan until they get a punch in the mouth. Stocks seem to be anticipating only positive surprises. Bonds seem to be behaving with a little more realism.
We think the direction of travel is clear. While we wish Messrs Musk and Ramaswamy well at the new DOGE, we suspect that the scale of the mess at the Augean Stables will be beyond even their superpowers to resolve. We suspect that the Austrian economist Ludwig von Mises will end up having the final say:
“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”
For this reason we continue to see merit in real assets including the monetary metals, gold and silver, and we remain distinctly unimpressed by paper claims issued by bad economic actors. We also see great merit in assets uncorrelated to both stocks and bond markets, namely systematic trend-following funds. We have long been concerned that a (disorderly) rise in US Treasury yields will not ultimately be met with investor enthusiasm at cheaper bond prices but rather by revulsion at a market wherein buyers are in retreat and where future oversupply is almost a mathematical certainty.
The term ‘rope-a-dope’ describes the boxing technique whereby a fighter simply leans back on the ropes and absorbs punches from his opponent, tiring his opponent out in the process. The fighter then counter-attacks against his exhausted rival. Muhammad Ali famously deployed this tactic in his 1974 bout against George Foreman in Kinshasa, Zaire. One could perhaps compare the fight with the ongoing sparring between the US and Russia, for example. But which is Foreman, and which is Ali ?
We would like to wish all readers a happy, peaceful and prosperous New Year.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and also in systematic trend-following funds.
“The debt took 191 years, 1790–1981, to grow to $1 trillion. “A trillion dollars,” the newly inaugurated Ronald Reagan marvelled in 1981 to lawmakers not yet accustomed to 13-figure budgetary line items, “would be a stack of thousand-dollar bills 67 miles high.” Forty-three years later, the gross public debt tops $36 trillion. The trillions come thick and fast, the 36th having arrived on Nov. 21, only 118 days after the 35th—that’s $2 trillion within 322 days..”
Get your Free
financial review
For those readers not intimately acquainted with modern American wrestling, ‘kayfabe’ is a term of art that acknowledges the staged, scripted nature of the ‘sport’. As Wikipedia puts it,
“As a concept, kayfabe involves both the fact that matches are scripted and that wrestlers portray characters for their shows. Unlike actors who portray their characters only when on set or on stage, professional wrestlers often stay “in character” outside the shows, especially when interacting with fans, trying to preserve the illusion of professional wrestling.”
Our favourite description of current financial markets used to be that they represented a form of Potemkin village; perhaps ‘kayfabe’ comes closer to describing the underlying reality, or rather lack thereof.
If you fancy a live experience of cognitive dissonance, compare the performance of US stocks – especially Big Tech – with US bond yields. 10 year Treasury yields have risen by a full percentage point, from 3.6% to 4.6%, since October. Not everyone is convinced by Trump election euphoria. Elon Musk, of the soon-to-be-created Department of Government Efficiency, has pledged to cut $2 trillion from the budget. That equates to a third of federal spending. But that will also be a tough ask, given that it will require slashing the US defence budget, as well as social security and Medicare, which Trump has vowed to increase and preserve respectively. $2 trillion also equates to five times the combined annual salaries of all federal employees.
Much therefore hangs on the fate of the US dollar. Former trade chief Robert Lighthizer has suggested that dollar devaluation could be a key focus of the new Trump administration. But Trump has also threatened 100% tariffs on countries moving away from using the dollar. The adjective ‘chaotic’ springs to mind.
Not that the chaos began with Trump. It arguably began, or rather went into overdrive, when a country $36 trillion in debt levied sanctions and then froze the foreign assets of a rival nuclear power. When you are so critically dependent on the generosity of foreign sovereigns, this is an unorthodox way of treating them.
We have been here before. James Grant points out that
“From the optimistic vantage point of 1926, Secretary of the Treasury Andrew Mellon made bold to predict that what remained of America’s wartime public debt could be paid off by 1942. He reckoned without Hitler, and the New Deal spending that preceded Hitler.”
Events, in other words. Events. Or as the pugilist Mike Tyson more colourfully put it, everyone has a plan until they get a punch in the mouth. Stocks seem to be anticipating only positive surprises. Bonds seem to be behaving with a little more realism.
We think the direction of travel is clear. While we wish Messrs Musk and Ramaswamy well at the new DOGE, we suspect that the scale of the mess at the Augean Stables will be beyond even their superpowers to resolve. We suspect that the Austrian economist Ludwig von Mises will end up having the final say:
“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”
For this reason we continue to see merit in real assets including the monetary metals, gold and silver, and we remain distinctly unimpressed by paper claims issued by bad economic actors. We also see great merit in assets uncorrelated to both stocks and bond markets, namely systematic trend-following funds. We have long been concerned that a (disorderly) rise in US Treasury yields will not ultimately be met with investor enthusiasm at cheaper bond prices but rather by revulsion at a market wherein buyers are in retreat and where future oversupply is almost a mathematical certainty.
The term ‘rope-a-dope’ describes the boxing technique whereby a fighter simply leans back on the ropes and absorbs punches from his opponent, tiring his opponent out in the process. The fighter then counter-attacks against his exhausted rival. Muhammad Ali famously deployed this tactic in his 1974 bout against George Foreman in Kinshasa, Zaire. One could perhaps compare the fight with the ongoing sparring between the US and Russia, for example. But which is Foreman, and which is Ali ?
We would like to wish all readers a happy, peaceful and prosperous New Year.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and also in systematic trend-following funds.
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