Three Things I Think I Think – The More Things Change The More They Stay The Same

Here are some things I think I am thinking about:

1) Markets are crazy, part 2,343,325. I like to say that markets don’t really “cycle” like a sine wave. They tend to trend up and to the right with temporary shocks along the way. Whatever causes the shock (up or down) will always be different. But the responses are more or less the same. That is, people get greedy, then they get really greedy, then they get fearful and then they get really fearful. Timing all of this is damn near impossible, but while the causal factors are always “different this time”, the one constant that’s never different this time is human emotion.

We’re obviously living through one of the “really greedy” phases. Case in point, AMC bonds, which have to be one of the charts of the year. These bonds were left for dead just 8 months ago and have roared back to life. What’s amazing about this though is that it’s not really a recovery story. This is more of a meme stock story. That is, Reddit investors have pushed the stock ever higher which allowed the company to raise capital earlier this year. And that capital infusion has allowed AMC to float. I always like to say that investing in secondary markets is akin to betting on horses. Your bets don’t necessarily impact the horses running the race. But here’s a situation where the markets are so crazy that the bettors have actually influenced how fast the horse can run….Amazing times.

2) The Economics of Permanent Stimulus. Matthew Boesler had a very interesting piece in Bloomberg yesterday. The basic gist of the article is that macroeconomics has changed forever in the sense that fiscal policy has now become the dominant response to economic downturns. He asks an interesting question coming out of 2020 – if the government can always replace the lost income from a recession then why wouldn’t the government always do this?

I’ll be honest. This is a question that scares me. Regulars know I am not all that sympathetic to Austrian economics and I generally favor fiscal policy to monetary policy. In fact, I am probably partially to blame for the sea change in thinking since I’ve been such a vocal proponent of using fiscal policy over the last 10 years. But I am still very much a Countercyclical Keynesian as opposed to the new brand of MMT style Procyclical Keynesian that has come to dominate much of the thinking of late.

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