Submitted by John Mauldin – Mauldin Economics
Back in April, my good friend Charles Gave, Chairman of Gavekal, penned a short but brilliant piece in which he likened central bankers to a bunch of monkeys in a cage. In the unforgettable “Of Central Bankers, Monkeys and John Law,” he proceeded to run down the parallels between France’s 18th-century “Mississippi Bubble” and the situation in the Eurozone today.
Now Charles has given us a follow-up, titled “The Apex of Market Stupidity,” in which he regales us with a sardonic but spot-on recap of the sundry ways in which market participants and analysts have been witless over the years. And just last week, he says, we scrambled, clawed, and algoed our way to the very summit of market stupidity, when European markets were routed by the failure of ECB Chairman Mario Draghi to be sufficiently dovish.
Thus, Charles concludes, we now find ourselves in a world where “value in the financial markets is no longer a function of the discounted cash flow of future income, but instead is determined by the amount of money the central bank is printing, and especially by how much it intends to print in the coming months.”
This distortion of the basic tenets of investing is leaving otherwise rational market participants feeling like they are living in an alternate universe. Of course, reality will eventually reassert itself; but as Keynes famously said, “The markets can stay irrational longer than you can stay solvent.”
For today’s Outside the Box I bring you both of these pieces, which not only make for fun reading, as Charles is such a great writer, but will also help you understand a bit more about the psychology of the marketplace.
I want to offer a comment on Donald Trump’s latest contretemps – that we should not allow Muslims into this country for a period of time. That may be simply the most boneheaded, ill-conceived idea I have heard from a politician in my life, which is saying a lot, given Bernie Sanders’ recent suggestions for cutting carbon emissions by 80% by 2050, which is merely impossible without creating a multi-decade depression in the United States.
Aside from the Constitutional, ethical, and practical problems, closing the border to arbitrary groups, even temporarily, would cause enormous economic damage. Muslim-majority countries would certainly retaliate by barring Americans and/or Christians. The result could be a trade war at least as bad as that brought on by the old Smoot-Hawley tariffs, with people as the weapons and no resulting benefit to national security.
My associate Patrick Watson offered a very succinct thought on Twitter that is in the process of going viral (he is @PatrickW). Here’s a cut-and-paste of it:
Trump simply offers to ISIS and other Islamic terrorists a further rationale for their hatred of the West: “See, it’s just like we said. The West doesn’t just want to go after us; it wants to destroy all of Islam. They hate us, which is why we must fight back. Everything we do in our jihad is justified because of their actions.”
Whether or not their point of view makes sense to us is beside the point. They will take Trump’s words and talk about how well he is doing in the polls and say this is how most Americans feel. Forget the fact that this may be the most unconstitutional idea I have ever heard from a major candidate (has he read the First Amendment?), his proposal is simply offensive on so many levels. To characterize an entire major world religion as comprising nothing but extremists is just not right.
The United States was first settled by religious refugees, and more than a few of your and my ancestors came as refugees from religious persecution, poverty, or oppression by brutal governments. They were seeking freedom and opportunity. We are a land of immigrants and we have an immigration process, and we have never had a religious requirement as part of that process. That would be unconstitutional and decidedly un-American. And yes, I get that many Muslim states are not taking in refugees, and all the rest. That isn’t any excuse for America to be anything less than the beacon on the hill that we are supposed to be.
Okay, let me just say it right here (even though this is going to anger more than a few of you): Donald Trump is the only man in America who could get me to vote for Hillary Clinton. You have to understand that my distaste for the policies that Mrs. Clinton would institute is monumental. I can’t tell you how bad a continuation of the current political climate would be for this country. But to have a loose cannon like Donald Trump in the White House – a man who could say and do just about anything at any time, with no control of his ego – would be too much.
Think about it for a moment. He is president, and basically, no one gets to tell the president no if he really decides he’s right. Sometimes that has worked well for the country, and at other times it has been a disaster. Donald Trump looks like a walking, talking, shoot-from-the-mouth-with-my-latest-greatest-idea disaster to me.
Trump continually spouts so-called solutions, and when asked how he would accomplish them, he just says, in essence, “I’m Donald Trump. I’m a world-class negotiator. I can just go to the bargaining table and get what I want.” When he says that ISIS would cease to exist under his administration but then offers no realistic plan as to how he would accomplish that, he reveals himself for the egotistical fool that he is. He really has no notion of history or military context or the impact of geopolitical decisions.
And now that I have offended a substantial number of my readers and probably even lost a few, I had better hit the send button before I get into even deeper trouble. Have a great week, and take comfort in the fact that 80% of Republicans haven’t decided who they will vote for, so that means Donald Trump is getting 25% of the 20% who have a favorite. I have to admit that I’m firmly undecided but would be happy with any one of five or six of them. They are probably not the same five or six you would choose, but I bet there would be some overlap.
Your trying to figure out what’s driving both politics and markets analyst,
John Mauldin, Editor
Outside the Box