2017 Year In Review

thomas · December 23, 2017, 1:15am

Every year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It's quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. -- cheers, Adam

Introduction

“He is funnier than you are.”

~David Einhorn, Greenlight Capital, on Dave Barry’s Year in Review

Every December, I write a survey trying to capture the year’s prevailing themes. I appear to have stiff competition—the likes of Dave Barry on one extreme¹ and on the other, Pornhub’s marvelous annual climax that probes deeply personal preferences in the world’s favorite pastime.² (I know when I’m licked.) My efforts began as a few paragraphs discussing the markets on Doug Noland’s bear chat board and monotonically expanded to a tome covering the orb we call Earth. It posts at Peak Prosperity, reposts at ZeroHedge, and then fans out from there. Bearishness and right-leaning libertarianism shine through as I spelunk the Internet for human folly to couch in snarky prose while trying to avoid the “expensive laugh” (too much setup).³ I rely on quotes to let others do the intellectual heavy lifting.

“Consider adding more of your own thinking and judgment to the mix . . . most folks are familiar with general facts but are unable to process them into a coherent and actionable framework.”

~Tony Deden, founder of Edelweiss Holdings, on his second read through my 2016 Year in Review

“Just the facts, ma’am.”

~Joe Friday

By October, I have usually accrued 500 single-spaced pages of notes, quotes, and anecdotes. Fresh ideas occasionally emerge, but most of my distillation is an intellectual recycling program relying heavily on fair use laws.⁴ I often suffer from pareidolia—random images or sounds perceived as significant. Regarding the extent that self-serving men and women of wealth do sneaky crap, I am an out-of-the-closet conspiracy theorist. If you think conspiracies do not exist, then you are a card-carrying idiot. Currently, locating the increasingly fuzzy fact–fiction interfaces is nearly impossible thanks to the post-election bewitching of 50 percent of the populace.

“The best ideas come as jokes. Make your thinking as funny as possible.”

~David Ogilvy, marketing expert

You might be asking, “What’s with the title, Dave? My 401K is doing great, and I own a few Bitcoin!” Yes, indeed: your 401K fiddled its way to new highs day after day, but this too shall pass—it always does—and not without some turbulence. This year was indeed a tough one to survey. As many peer through beer goggles at intoxicatingly rising markets, I kept seeing dead people (Figure 1).

“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping: I admit to not understanding it.”

~Richard Thaler, winner of the 2017 Nobel Prize in Economics

Figure 1. An original by CNBC's Jeff Macke, chartist and artist extraordinaire.

A poem for Dave's Year In Review

The bubble in everything grew

This nut from Cornell

Say's we're heading for hell

As I look at the data…#MeToo

~@TheLimerickKing

Some will notice that in decidedly political sections, the term “progressives” is used pejoratively. Their behavior has become nearly incomprehensible to me. My almost complete neglect of the right wing loonies may reflect some bias, but politically, they have taken a knee. They have become irrelevant. Free speech is a recurring theme, introducing interesting paradoxes for employee–employer relationships.

Some say I have no filter. They obviously have no clue what I want to say. In case my hints are too subtle, I offer the following:

Sources

I sit in front of a computer 16 hours a day, at least three of which are dedicated to non-chemistry pursuits. I’m a huge fan of Adam Taggart and Chris Martenson (Peak Prosperity), Tony Greer (TG Macro), Doug Noland (Credit Bubble Bulletin), Grant Williams (Real Vision and TTMYGH), Raoul Pal (Real Vision), Bill Fleckenstein (Fleckenstein Capital), James Grant (Grant’s Interest Rate Observer), and Campus Reform—but there are so many more. ZeroHedge is by far my preferred consolidator of news. Twitter is a window to the world if managed correctly. Good luck with that. And don’t forget it’s public! Everything needs an open mind, discerning eye, and a coarse-frit filter.

“You are given a ticket to the freak show. When you’re born in America, you are given a front row seat, and some of us get to sit there with notebooks.”

~George Carlin, comedian

My Personal Year in Review

Who cares what an academic organic chemist thinks? I’m still groping for that narrative. In the meantime, let me offer a few personal milestones that serve as a résumé while feeding my inner narcissist. I remain linked into the podcast circuit, having had chats with Max Keiser and Stacy Herbert (Russia Today aka RT),⁵ Chris Martenson,⁶ Jim Kunstler (The KunstlerCast),⁷ Lior Gantz (Wealth Research Group),⁸ Anthony Crudele (Futures Radio Show),⁹ Susan Lustick (News-Talk 870 WHCU),¹⁰ Jason Burack (Wall St. for Main St.),¹¹ Dale Pinkert (FXStreet),¹² Lance Roberts (Lance Roberts Show),¹³ and Jason Hartman (Hartman Media Company).¹⁴ I also spoke at Lance Roberts’s Economic and Investment Summit discussing campus politics¹⁵ and the Stansberry Conference (Figure 2) arguing the merits of price gouging.¹⁶ I got into a big spat with the American Federation of Teachers and some local social justice warriors that made it to the national press (see “Unions”) and dropped 30 pounds unaided by disease.

“And, before anyone should doubt what a chemistry professor would know about unions and what effect they would have, it should be noted that Collum has amassed a following for his annual 100-page papers on the state of business and politics. Turns out, he knows a thing or two about economics and politics as well.”

~Joe Cunningham, RedState

Figure 2. The lovely Grant Williams, brainy Danielle DiMartino Booth, and one of the Paddock brothers in Las Vegas.

On the professional side, I had a great year: I finished my stint as department chair; started a sabbatical leave; broke my single-year total publication record; and broke my single-year record for papers in the elite Journal of the American Chemical Society. I attempted to extend a contiguous string of 20 federal grants without a rejection by submitting two NIH grants and subsequently got totally blown out of the water. (OK. I’m still walking that one off. I think the panel finally noticed that I am deranged.) I was accepted into an organization called the Heterodoxy Academy, whose membership includes hundreds of tenured professors standing up for free speech on college campuses.¹⁷

“My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.”

~Jason Zweig, Wall Street Journal columnist

Investing

“I dig your indefatigable bearishness, my friend.”

~Paul Kedrosky, one of the earliest bloggers

I’m sensing a tinge of Paul's sarcasm. My net worth from January 1, 2000, has compounded at a ballpark annualized rate of 7 percent. That’s not so bad, but the path has been rather screwy. From mid ’99 through early ’03, I carried cash, gold, silver, and a small short position. I kept buying gold through about 2005 (up to $700 an ounce), resumed in 2015, and bought several multiples of my annual salary’s worth in 2016. I’m done now. Gold is up 8 percent, and silver is down –2 percent in 2017 thanks to a minor end-of-year sell off. The spanking from ’11 to ’15 seems to have subsided.

Precious metals, etc.: 29%

Energy: 0%

Cash equivalent (short term): 62%

Standard equities: 9%

“Most people invest and then sit around worrying what the next blowup will be. I do the opposite. I wait for the blowup, then invest.”

~Richard Rainwater

I was totally blindsided by the downturn in gold starting in ’11 and energy in ’13. (Energy peaked in ’08 but was on the mend until ’13.) I bought energy steadily starting in ’01 with broadly based energy funds and a special emphasis on natural gas. The timing of entry was impeccable and all was going swimmingly—I was a genius!—until the Saudi oil minister attempted to talk oil down from $110 to $80 per barrel¹⁸ in '13. He thought he could blow the frackers out of the game fast, but it was a hold-my-beer moment for our credit system. The frackers kept fracking, the oil price overshot the Sheik's target by $50 per barrel, and I got whacked for 30–45% losses over four years starting in '14.¹⁹

It is impossible to know when you’re being a highly disciplined buy-and-hold investor—a Microsoft and Apple gazillionaire refusing to sell—or just an idiot. I sensed that the rotten debt had been purged and we were through the worst of the energy downturn. I worried that a recession could do a number on me, but it took years to get to my position through incremental buying. I’m holding on, goddammit! We seem to be running out of downside. Unbeknownst to me until October, however, my employer had liquidated my energy funds—every last one of them—and put me in a life-cycle fund in April. Sell ’em after they plummet? Thanks guys. A rational investor, if committed to hold them, would undo the general equity fund restrictions—I did—and buy the energy funds right back—I didn’t. Friends in high places all said to wait. About a week later, the Middle East erupted in what looked like a sand-to-glass phase transition (see “Middle East”), and energy started to move in sympathy. Peachy.

Fidelity actually saved me a little money, but I am still white-knuckling the cash, growing a long wishlist, waiting for a generalized sell-off/recession to offer some serious sub-historical-mean bargains (see “Broken Markets”). The correction in ’09 at the very bottom brought us to the historical mean, but not through it. For this reason, I have largely skipped this equity cycle. The current expansion is long in the tooth and founded on poor fundamentals. I hope that the wait won’t be too long. Until then . . .

“Remember, when Mr. Market shows up at your door, you don’t have to answer.”

~Meb Faber, co-founder and CIO of Cambria Investment Management

Economy

“A decade after the biggest crisis since the Depression, a broad synchronized recovery is under way.”

~The Economist, March 2016

Whoa! Fantastic! Goldilocks survived another bear. There is just one hitch: that was a total load of crap in 2016, and it’s a colossal load now. Let’s take a peek at a few gray rhinos—“large and visible problems in the economy that are ignored until they start moving fast.” GDP growth rates from 1930–39 and 2007–16 were as follows:²⁰

GDP growth in the 1930’s

1930: –8.5%   1935: 8.9%
1931: –6.4%     1936: 12.9%
1932: –12.9%   1937: 5.1%
1933: –1.3%     1938: –3.3%
1934: 10.8%     1939: 8.0%

GDP growth in the new millennium

2007: 1.8%     2012: 2.2%
2008: –0.3%     2013: 1.7%
2009: –2.8%     2014: 2.4%
2010: 2.5%       2015: 2.6%
2011: 1.6%       2016: 1.6%

Whether you use the arithmetic or geometric mean, both gave us 1.3 percent annualized growth. Let’s spell this out: during the recent era in which markets soared, the economy tracked the Great Depression. It is instructive to look at the economy with a little more granularity than the writers at The Economist-Lite.

According to John Mauldin, total domestic corporate profits have grown at an annualized rate of just 0.1 percent over the last five years.^21,22 Goldman’s Abby Joseph Cohen says R&D spending is down to 2.5 percent of GDP from 4.5 percent and is a drag on the economy.²³ Economic bellwether General Electric saw revenue drop 12 percent and earnings fall 50 percent year-over-year,²⁴ and these numbers are aided by the company’s legendary creative accounting schemes.²⁵ Meanwhile, corporate America witnessed a 71 percent rise in business debt since 2008. According to economist Lacy Hunt, “It’s the investment, the real investment, which grows the economy,” prompting the legendary market maven @RudyHavenstein to state dryly, “I like Hunt.” Where are they spending all that borrowed money? Hold that thought. Long-term demographic problems—“quantitative aging” (Figure 3)—exacerbated by dropping sperm counts²⁶ suggests the economy will continue to shoot blanks.

Figure 3. Demographics looking sketchy.

Putative job gains affiliated with this low growth are fragile if not dubious as hell and are being boosted by the “Dusenberry effect”—consumers’ reluctance to stop spending even after their income drops—which will cause the next recession to be a real Dusey. (Sorry.) Eventually, common sense prevails as companies run out of credit and savings-deficient consumers reassume the fetal position. According to extensive work by Ned Davis Research, cash levels among households are near their lowest levels of all time; consumer resiliency is always temporary.

“When it is all said and done, there are approximately 94 million full-time workers in private industry paying taxes to support 102 million non-workers and 21 million government workers. In what world does this represent a strong job market?”

~Jim Quinn, The Burning Platform blog

The Bureau of Labor Statistics has turned to Common Core math. How can we have 100 million working-age adults—40 percent of the working-age population—not working, 4 percent unemployment, and employers claiming the labor market is tight? Are 90 percent of those without jobs professional couch potatoes? Let’s first look at employment in some detail and then address that whole “tight” part. Googles of pixels have been dedicated to the obligatory labor force participation rate (Figure 4), a critical component of any economic debunking. Of those employed, 26 million people are in low-wage, part-time jobs (Figure 5), 8 million hold multiple jobs, and 10 million are “self-employed.”²⁷ Another 21 million work for the government, which means they are a tax on the free market. In 2016, 40 percent of new jobs were fabricated through the specious “birth and death model.”²⁸ 2017 will presumably post similar numbers. Occasional reports of large job growth are deceptive. July, for example, witnessed 393,000 benefit-free, part-time, low-skill jobs offset by a drop of 54,000 full-time workers. Payroll numbers keep coming in lower than expected, which economists invariably blame on some big, yet unseen effect they are paid to notice. Nine out of 10 millennials living on their parents’ couches a year ago are still clutching TV remotes.²⁹ There are now 45–50 million Americans on food stamps, up from 14 million in December 2007,³⁰ when the last recession was already underway.

Figure 4. Labor force participation.

I am going to let Jeff Snyder take a crack at explaining the tight labor market:³¹

“The economy is tight, not favourably tight as in no slack in the labour market, but more so tight in that there is little margin for addition. . . . The reality in the markets is this: executives are reluctant to pay wages at a market-clearing rate.”

~Jeff Snyder, Alhambra Investments

Figure 5. Low-paying service jobs versus manufacturing jobs.

Poor economic numbers are pervasive. Auto sales are canaries in the coal mine and getting crushed despite aggressive incentives.³² Ford is already suffering and predicting a multi-year slowdown.³³ A car industry crunch analogous to that in ’09 may appear in ’18 as expiring leases leave consumers underwater owing to dropping used car prices, and decreasing profits in the auto industry may “then turn from secular to structural problems.”³⁴ Morgan Stanley predicts a 50 percent drop in used car prices over the next 4–5 years,³⁵ which will gut the new car business. The auto downturn has already begun. Wells Fargo is reporting large drops in auto loans after a long stretch during which subprime car loans flourished yet again.³⁶ That should put a fork in the new car market.

Yield-starved investors are chasing cash- and income-starved car buyers. Subprime auto-asset-backed securities will take yet another beating. Chrysler is teaming up with Santander Consumer USA to push out “unverified income” subprime auto loans using “automated decision making.” Santander seems to have nine lives, and they’ll need all of them. The hyperdeveloped loan market for used cars, however, is already faltering (Figure 6); delinquency rates are rising. Goldman expects “challenging consumer affordability” and has downgraded General Motors to “sell.”³⁷ Those cars y’all bought on cheap credit yesterday will not be bought tomorrow. Claims that the hurricanes cleared out auto inventory³⁸ are grotesquely underestimating the magnitude of the overhang and will be paid for by reduced consumption in other sectors. Any consumption pulled forward with debt has a deferred cost.

Figure 6. Some key auto industry stats (a) loans and leases, (b) loan delinquencies.

We’ll take a crack at the housing market in its own section and simply note here that the cost of renting or buying normalized to income has never been higher. Approximately half of tenants spend more than 30 percent of their income on rent, doubling from a decade ago.³⁹ A survey of 20 cities showed that housing costs are growing at a 6 percent annualized pace. Our paychecks are not. Housing is a bubblette and likely to offer fire-sale bargains again. What many fail to grasp is that the reduced cost of borrowing owing to low rates is offset by higher prices. When interest rates were 15 percent, houses were cheap.

Austrian business cycle theory says easy money policies generate overdevelopment and other malinvestment. The day of reckoning appears to be here. (I say that every year…channeling Gail Dudek.) Familiar brands like Toys “R” Us (my keyboard has no backwards R), JCPenny, Abercrombie & Fitch, Sears, Bon-Ton, and Nordstrom are gasping their last gasps before drowning in debt with no customers to save them. Total retail revenues and sales (including online) are up only 28 percent from the 2007 high.⁴⁰ The management of Ascena Retail referred to an “unprecedented secular change.”⁴¹ More than 100,000 retail jobs have vaporized since October 2016.⁴² Credit Suisse estimates that more than 8,000 retail outlets closed this year.⁴³ Consumer goods companies have held up better because consumers generally put off starving or freezing to death until all options are exhausted. Restaurants are extending the longest stretch of year-over-year declines for 16 consecutive months (last I looked).⁴⁴ Business Insider blames millennials because they are “more attracted than their elders to cooking at home” (particularly when it’s their parents’ home.) Manhattan retail bankruptcies are called “horrifying.”⁴⁵

Chapter 11s and company reorganizations in foreign courts increased sevenfold.⁴⁶ Mall owners are using jingle mail—a term from the ’08–’09 crisis referring to leaving keys to creditors. Commercial retail will be coming into its own refinancing wave in 2018. Bears are sniffing around commercial-mortgage-backed securities as malls around the country begin to die.⁴⁷ The next downturn will finish many of them off. Exchange-traded funds (ETFs) are positioning to short the brick-and-mortar retail. (Quick: somebody grab the ticker symbol “MAUL.”) Some suggest the Rout in Retail is merely a secular shift to online. Sounds logical except online sales represent only 8.5 percent of total retail sales.⁴⁸ This argument might be masking a huge downturn in retail corresponding to the bursting of yet another Fed-sponsored bubble.

As Amazon encroaches on every nook and cranny of retail sales, what began as a murmur has turned into a chorus: “This isn’t fair; somebody must do something!” Walmart knows this plotline. Market dominance does not connote “monopoly,” but Amazon has an image problem. Amazon gets a $1.46 subsidy (discount) per box from the USPS, well below its cost.⁴⁹ Seems cheesy. Congress is showing concern out of self-interest. A monopoly is when a company uses its power to blow its competitors out of the water garishly. Who decides what is garish and when enough is enough? A judge under political pressure. A detailed summary of the breadth of Amazon’s market share and its anti-competitive pricing suggests that we are getting close.⁵⁰ There’s nothing like a protracted anti-trust suit to mute the growth of a large conglomerate. Just ask the Microsoft high command.

If our problems are not Amazon, what are they? Austrian business cycle theory says that our debt-driven, consumer-based economy endorsed by sell-side economists and analysts worldwide is unsustainable. Wealth is made, mined, grown, or coded, only then do you get to consume it. Wealth is extinguished by consumption, depreciation, and destruction. Central bankers seem to believe you can will wealth into existence by generating animal spirits.

The next recession will start unnoticeably. Economists seem to miss every single one, often declaring telltale indicators irrelevant. Then you will hear phrases like “technical recession,” “growth recession,” or “earnings recession,” all eventually giving way to somebody opening the Lost Arc. If the next recession flushes the waste products (malinvestment) left behind by the central-bank-truncated ’08-’09 recession, it w

This is a companion discussion topic for the original entry at https://peakprosperity.com/2017-year-in-review/

cmartenson · December 23, 2017, 4:24pm

A big thank you(!) to Dave Collum for writing this year end review with such completeness and humor.
We are honored to have it posted here at Peak Prosperity.
I hardly know where to begin so perhaps I’ll summarize; We’re scroomed.
And I am a die-hard doom-ist!*

Actually an optimistic realist. But no such shade of gray is allowed in the USA right now. You are either with the Pollyannas or against them.

dennisc · December 23, 2017, 5:20pm

This is one of my favorite annual gifts and an eagerly awaited, multi-layered present that is fun to unwrap chapter by chapter. Thank you David, and Adam and Chris!

uncletommy · December 23, 2017, 7:20pm

Thank you PP for including this year-end tome on David’s analysis of our species sybaritic predicament. Always a hoot! The analogy of Rome burning is appropriate given our current state. Smoldering may be the more apt term.

“This is the way the world ends Not with a bang but a whimper.” -T.S. Elliot

As long as we(humans) continue to shape our environment to meet our needs, we will live beyond this planet's capacity to meet those needs. As David points out"

"Wealth is made, mined, grown, or coded, only then do you get to consume it. Wealth is extinguished by consumption, depreciation, and destruction. Central bankers seem to believe you can will wealth into existence by generating animal spirits."

PP's emphasis on preserving wealth and living resiliently is admirable, but only highlight's our inability to achieve a meaningful existence while preoccupied with the mundane exigencies of life. Ironically, the Christmas message of salvation from ourselves seems well timed with David's observations. Merry Christmas; and "peace on earth and good will toward men".

snydeman · December 24, 2017, 4:10pm

…agree with him on all of his political leanings, but I heartily embrace and welcome his year-in-review. I would agree that he and others like him should have the freedom to express these points of view openly. I lean liberal on most issues, but if I want to debate his points of view then I should do so with data, facts, and honest discussion rather than silencing him through some kind of faux-liberalism that ignores one of the fundamental tenets of the Enlightenment: freedom of expression.

I’m not sure how my fellow liberals have forgotten what liberalism means, but I suppose that ranks right up there with people who thought Obama was going to make us socialist; a perspective that ignores history - we’ve been socialist since the 1930s, it’s just a question of degree of socialist. Ignorance abounds, I suppose.

tommyguy · December 25, 2017, 8:20pm

Is there any chance you can post the PDF version with embedded links preserved? It would be oh-so-much more useful.
Thanx

wolfbay · December 26, 2017, 1:12pm

I agree that one way or another this central bank induced fiasco will end badly but has the stock market ever been manipulated by central banks before as it is now? The insanity of the Swiss,Japanese,and European central banks buying shares will newly “printed” money is unprecedented isn’t it? Even the FED mentioned that stock purchases might be necessary in the future. Doesn’t reversion to the mean require at least some semblance of a free market?
I’m not comparing our situation at this point to Venezuela but their stock market is on a tear even if in real terms it’s down somewhat. If my choice is holding cash in a currency that quickly looses value or owning part of some crappy business that may make a small profit I’ll go with the business.

newsbuoy · December 26, 2017, 6:47pm

The Guardian has an article about New York’s vanishing shops and storefronts: “It’s not Amazon, it’s rent”
I was reminded of Niall Ferguson’s “The Ascent of Money” where he looks down on Manhattan and realizes how it’s just like Venice, only without the gondolas. It’s never different, anytime. Not even extinction.
http://nymag.com/news/intelligencer/51011/

bugmenot · December 26, 2017, 7:28pm

Dave Collum has a posted a year in review at PeakProsperity since 2010. 8 years.
He used to give his personal return in these tomes, but it’s strangely absent in this one; another year of under-performance is the most likely culprit. Based on his allocation for the year I would guess it was sub 5%.
Going back over his old reviews, Dave’s annualized return since the end of 2009? 1.5%. (Feel free to correct me)

His preferred benchmark, Berkshire, has been up close to 15% annualized.

Let's face it Dave. Your track record is dismal. I don't think that even counts the physical gold you lost in 2016. Is it possible you had a negative total return over 8 years during one of the greatest bull market runs in recent history???

If you had put your money in a CD you would have made more money, slept better, and probably be in better health. But I guess then you wouldn't be semi-famous on financial twitter.

Please... Stop writing these. Close the conspiracy theory websites. Put down the twitter. Take a deep breath. Open a Vanguard account.

matt-holbert-2 · December 26, 2017, 8:25pm

he thinks the equity markets are insane…
and do take the time to read the article in its entirety.

My net worth from January 1, 2000, has compounded at a ballpark annualized rate of 7 percent. That’s not so bad, but the path has been rather screwy. From mid ’99 through early ’03, I carried cash, gold, silver, and a small short position. I kept buying gold through about 2005 (up to $700 an ounce), resumed in 2015, and bought several multiples of my annual salary’s worth in 2016. I’m done now. Gold is up 8 percent, and silver is down –2 percent in 2017 thanks to a minor end-of-year sell off. The spanking from ’11 to ’15 seems to have subsided.

bugmenot · December 26, 2017, 10:05pm

I was talking about his returns specifically for 2017. Makes it easier add it all up.
Dave rode the gold wave for a decade and thought he was smart. Go back and read his letters from 2010/2011. The smart investor would re-evaluate his thesis after getting crushed the way Dave has; instead he dives deeper down the rabbit hole. I’m just trying to help him get healthy.

davefairtex · December 27, 2017, 3:09am

Dave rode the gold wave for a decade and thought he was smart. Go back and read his letters from 2010/2011. The smart investor would re-evaluate his thesis after getting crushed the way Dave has; instead he dives deeper down the rabbit hole. I'm just trying to help him get healthy.

I am always happy when I read stuff like this. It is a) very true, and b) probably marks the low for us long-suffering goldbugs. I was buying oil stocks back in 2016. Boy was that an unhappy trade. I was too early. As a result, my returns also looked terrible. Fortunately I don't publish an annual message, so nobody makes fun of me. This year, they are much improved. If and when "oil really comes back" I'm going to do well, but in the intervening period - waiting for the market to come back around - can be really annoying. Still, a useful observation is that when markets get extended (as gold was in 2011), its probably a good idea to take some money off the table. At the same time, getting off the train before it arrives at the station is no fun too. Selling your dotcom in 1997, for instance, leaves you 3 years of regret. Bitcoin owners who "sold the top" at 1100 in 2014 are probably not so happy right now. It is really a hard question to answer: "how far do we ride the move?" We can make fun of Dave all we like, but that's because we're armed with 20/20 hindsight. Lots and lots of smart people thought money printing would lead to inflation - so did the Fed - but it turns out the only inflation we saw was asset price inflation, due to the reach for yield. 2011 marked "peak inflation expectations from money printing." But as a result of our experience, we now know the equation: hand money to banks = asset price inflation. Hand money to people = "real" inflation. Interestingly: the Trump tax cut hands money to people. And companies. How will that differ from what the Fed did? The tax cut should be inflationary. The government will be taking less money out of normal people's paychecks and borrowing the difference. That's a stimulus package - even more so because its (semi) permanent rather than a one-time money drop. It is possible we will get a mini boom that will kick in right before the 2018 midterms - assuming the EU doesn't blow up because of the Italian elections. I'm also watching bitcoin keenly, so I can learn lessons for when gold does its big move. I, too, don't want to think I'm dreadfully smart, and hold all the way up - and then all the way back down again. Nor do I want to sell my telecom in 1997.

grover · December 28, 2017, 6:24pm

Snydeman wrote:

I'm not sure how my fellow liberals have forgotten what liberalism means, but I suppose that ranks right up there with people who thought Obama was going to make us socialist; a perspective that ignores history - we've been socialist since the 1930s, it's just a question of degree of socialist. Ignorance abounds, I suppose.

Snydeman, I'm curious ... because I really don't know. Would you mind detailing what liberalism means? I'll give you extra style points if you can show how we can un-hijack what-liberalism-has-become away from the moneyed interests inhabiting the swamp. Grover

matt-holbert-2 · December 28, 2017, 6:53pm

Grover-
Gray helped me gain a perspective on the meaning of liberalism and why it is a problem. Specifically, I would recommend Enlightenment’s Wake: Politics and Culture At the Close of the Modern Age. John Gray is Nassim Taleb’s favorite philosopher.
worldcat link: http://www.worldcat.org/title/enlightenments-wake-politics-and-culture-at-the-close-of-the-modern-age/oclc/941437450&referer=brief_results

bugmenot · December 28, 2017, 8:05pm

davefairtex wrote:

I am always happy when I read stuff like this. It is a) very true, and b) probably marks the low for us long-suffering goldbugs. .... Fortunately I don't publish an annual message, so nobody makes fun of me. This year, they are much improved. ... We can make fun of Dave all we like, but that's because we're armed with 20/20 hindsight.

You seem confused. I am not here to make fun of Dave Collum's horrible, no good, very bad returns the last 8 years. And gold bottoming here would not make these novel-like "Year-in-Reviews" any better. He has been 80%+ in cash/gold for 8 years (and probably since the late 90's). Random chance would say he should have a good year here or there. I am saying he should probably just buy a simple life-cycle fund and forget about investing. Ironically, whatever gains he had this year were likely from his employer forcing him out of his more esoteric holdings and into a life-cycle fund. It's like the Investment gods themselves are trying to get his attention but he can't see it.

davefairtex · December 28, 2017, 8:23pm

Yes we are definitely having a communication issue then. You certainly seemed to be making fun of him. Me, if I wanted to make fun of someone, I’d be happy to own it. But that’s me.
So gold from 2000-present was a pretty good trade. Was SPX as good?
Let’s see. SPX:
2000-01-03: 1455.17
2017-12-27: 2682.62
Looks like 84% to me.
Now what did gold do again?
2000-01-04: 283.70
2017-12-27: 1291.40
Isn’t that 356%?
Even if all the man did was stay in gold, he’d still have beaten one of those index funds. Do you have a “life cycle fund” example we could look at? I know its incredibly cool at other sites to just make fun of people without showing your work, but…we’re not like that here.
So here’s your chance. Show your work. What life-cycle fund would have beaten gold 2000-2017? Maybe I’ll give one a try.

bugmenot · December 28, 2017, 9:43pm

The man didn’t just stay in gold; he mixed in some poor stock selection and large cash allocations as well!
Did your gold number include losses from physical gold stolen from the dealer? That can put a damper on returns. I also like how you excluded dividends from the S&P’s return. Are you trying to sell me a FIA?
I will measure Dave by his (previous) preferred benchmark of Berkshire.
Let’s see. BRK.B:
2000-01-03: 35.30
2017-12-27: 198.69
Is that 463%?
It’s strange he stopped the comparisons when he couldn’t pretend to be smarter than Buffett.
In fact, everyone should just read Warren’s annual letter instead.

davefairtex · December 29, 2017, 10:21am

Sure the SPX dividends are worth something. With dividends included, does it beat gold’s return? Likewise, I’m still waiting for the 17-year returns on the lifecycle fund you suggested. If you provide me a symbol I can look it up myself.
But I see you’ve moved onto Berkshire Hathaway. I confess, I like Buffet’s general view on how to buy things: straw hats in the wintertime, it just makes sense. So maybe we should all just buy Berkshire and forget about everything else. He’s very well connected.
So the math: 199/35 = 468%. That’s really good. Buffet beats gold by quite a lot. And it crushes SPX, and I suspect your hypothetical lifecycle fund.
Ok, so that brings us to timing.
Is it wintertime? Is now the time to buy straw hats? Honestly, it doesn’t feel like it to me. So I’m not in the market for straw hats. In fact, it sounds like you might be suggesting that we buy straw hats during the summer - right at the tail end of an 8 year “expansion”.
Definitely, people waiting for cheaper prices have not done well in recent years. Even Buffet’s own metrics (calculated before the age of money printing) are screaming “right now is really expensive.” Should we all pile into Buffets fund right now?
Snark aside, that is the point.
Even Buffet has a 109 billion dollar cash hoard right now.

snydeman · December 29, 2017, 5:05pm

Grover wrote:

Snydeman wrote:

I'm not sure how my fellow liberals have forgotten what liberalism means, but I suppose that ranks right up there with people who thought Obama was going to make us socialist; a perspective that ignores history - we've been socialist since the 1930s, it's just a question of degree of socialist. Ignorance abounds, I suppose.

Snydeman, I'm curious ... because I really don't know. Would you mind detailing what liberalism means? I'll give you extra style points if you can show how we can un-hijack what-liberalism-has-become away from the moneyed interests inhabiting the swamp. Grover

Grover,

I can absolutely try! Forgive any mistyping, please, as I’m at the in-laws and typing with fat fingers on a small screen.

Historically speaking, liberalism emerged out of the Enlightenment period, and liberals were those who embraced the ideals commonly espoused by so-called “Enlightenment thinkers,” which can be more or less listed as:
-freedom of expression
-religious tolerance
-humane treatment of people (mostly, a fair system of justice that didn’t have separate punishments for one class or another)
-freedom from governmental interference in the economy (opposing mercantilism was a core principle for many Enlightenment thinkers)
-more equitable or representational systems of government and taxation, although there was less unanimity among the philosophers of the Enlightenment over which type of government would be best - Voltaire and Rousseau would hardly have agreed on that - but there was a general sense that government by the nobility was less desirable than some level of participation by “the people.”

-freedom of the press

etc. In essence, the things embodied in the English Bill of Rights, and then the US Bill of Rights, are a good example of Enlightenment ideals in action.

So, the early liberals were those who embraced the Enlightenment, but more broadly speaking the definition can be elucidated as the desire to bring more equal and fair treatment to more people, as well as allow more people to participate in the political, economic, and social systems. The problem is that liberalism is constantly shifting (as is conservatism), because what was “liberal” change in one generation is a given in the next, and so the definitions of each are constantly evolving. Most broadly speaking, liberalism is the idea of changing to something new, usually rapidly, while conservativism advocates tradition or at least slower rates of change; both are definitions I find too obtuse and generic for my tastes.

However, at its core, liberalism as an ideal has its origins in the Enlightenment philosophies that spawned those ideals - it should be noted that “conservativism” also did not become a formulated “ideal” until the emergence of liberalism (best elucidated by Edmund Burke at the time) - and so it seems ironic to me that any fellow liberals would try to shut down the free speech of others. That’s a violation of a core tenet of the Enlightenment, and hardly strikes me as liberal in any meaningful way. This is probably why I was as viciously attacked on my Facebook feed as much from the left as from the right when I tried to advocate that perhaps, maybe, possibly we should try to understand the dynamics of what’s going on in our county instead of just pointing fingers at each other and calling each other names. I advocated this silly thing called “listening with an open mind” and all. Heresy, apparently.

Hopefully this all makes sense- I’m being interrupted by my kids and relatives every third minute, so hopefully I maintained a clear thought process all throughout my response…

-Snydeman

snydeman · December 29, 2017, 5:09pm

And I’ll try to tackle the second half of what you asked as soon as things die down here. Plus, I need to think on it! It’s a tall order indeed!