by John Mauldin
Today's Outside the Box comes to us from my good friend and business partner Niels Jensen of Absolute Return Partners in London. Niels gives us an excellent summary of how QE has affected the global economy (and how it hasn't). I have found myself paraphrasing Niels all week.
I also want to call to your attention an interview first posted at ZeroHedge between my friends Chris Whalen and David Kotok. This is an inside-baseball view of a not-so-minor issue involving central banks and ZIRP. The FDIC charges 7-10 basis points on deposits for the national deposit insurance scheme. At close to the zero bound, the fee means that banks can lose money on deposits. As Chris and David point out, this is just another distortion being fed into the system. David was the first to introduce me to this concept (and rather passionately). I have not written about it because it gets complicated quickly, but it highlights a very serious problem and one that is not dissimilar to the deflationary aspects of the Basel III requirements, working at odds with what central bankers are trying to do. This goes with my long-held contention that the models the Fed and all central banks are working with are simply inadequate to describe the complexity of the global economy, and we have no true idea what we are doing, just a guess and a hope.
Then there's this quote that appeared in the Wall Street Journal this weekend, from Friedrich A. Hayek's lecture "The Pretense of Knowledge," delivered upon accepting the Nobel Prize in economics, Dec. 11, 1974:
To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. In the physical sciences there may be little objection to trying to do the impossible; one might even feel that one ought not to discourage the over-confident because their experiments may after all produce some new insights. But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority.
Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based—a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.
There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, "dizzy with success," to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society—a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.
Finally, and speaking of Zero Hedge, I want to offer a personal note about what I think is an egregious affront to the integrity of a close friend. Zero Hedge published and then expanded upon a rather silly article written in the Toronto Globe and Mail about the “sweet” deal that Gluskin Sheff chief economist David Rosenberg gets, noting that his $3,000,000 salary seems high for a top-five executive at a public firm, and implying that Rosie decided to turn bullish in return for the pay increase, that in essence his opinion could be bought.
Let me state that Rosie is a close personal friend and that we try to spend as much time as possible together and keep up with each other on the phone about our views on the world. Since we are more or less in the same business (writing and speaking on investments), we also share rather deep data on our personal business situations. I know Rosie’s business situation first-hand. I have offered Rosie advice on that compensation package.
First, the sweet deal is Gluskin Sheff’s. I have argued to some of their management that Rosie is underpaid. I think I might have used the word massively. Why? Because he writes a newsletter that has 3,000 subscribers who pay a $1,000 a year – roughly equal to his salary. But in addition GS gets his brand – and it is a valuable one– more or less for free and still works Rosie's ass off traveling the country meeting with clients, all while he puts out a lengthy daily letter. The man is a machine. Now, kudos to Gluskin Sheff for getting that deal. I wish I could get him for that for Mauldin Economics. But Rosie is not overcompensated, based on his actual production numbers.
Rosie is one of the most popular speakers at my annual conference. This year, after having been bearish for years, he turned bullish while at my conference and presented the reasons why. He had been at GS for several years as a very firm, committed bear. He gets no more money contractually whether he is bearish or bullish. Like me, he just wants to get it right. We win some and lose some, but we call it the way we see it. To suggest that someone like Rosie can be bought (with what I think of as his own money from his newsletter sales) is ridiculous. Zero Hedge owes Rosenberg a major apology.
And one final point. The “author” of the ZH piece is “Tyler Durden,” which is a pseudonym. The name comes from a movie character in Fight Club. If you are going to trash someone, at least have the testosterone to do it using your real name. Man up, guys. And kudos to my readers, who when they respond to my letters almost always do with their real names and photos. None of this hiding behind the web BS. I notice that even when my thoughts get trashed, it is done civilly and with the respect of people arguing different opinions. As opposed to the situation on some other websites. But then, I always knew my readers were a cut above.
Time to hit the send button, as another meeting here in NYC is coming up in a few minutes. Tomorrow should be a very interesting day, and I will report what I learn at the CIO Investment Summit this weekend.
Your thanks for letting me vent analyst,
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