Following Bunk Moreland on Gold, Monetary Policy

There is something about monetary policy that drives significant portions of the investing populace insane. As a guess, it’s possible that the physical act of printing dollar bills, and the virtual act of money creation in the banking sector, is enough like magic to tap into the medieval part of the brain to generate the “BERNANKE’S IN LEAGUE WITH LUCIFER!” reaction so common from those compelled to comment on any story involving aggregate liquidity.

People done digging dog face in the banana patch. I can safely write sentences like that because half of this post’s readers have already closed their web browsers and have started composing 2500 word responses to paragraph one. They will marvel at how I can be flip about an issue that is clearly at the core of our democracy. My answer is: I don’t care. Yet.

The simple fact is that for the next week and next month, the value of global currencies will be largely determined by cross-border asset flows. Political news from Southern Europe will be offset by ECB transfers to maintain bank liquidity levels. As with the yen and the yuan, these are policy questions not theological ones. The veracity of MMT theory or the “hocus pocus” of fiat currency will not enter into it. The believers being fully invested already and any notion of intrinsic value being tossed out the window already, gold will rise or fall based on sentiment and technicals. Again, I don’t care. Yet.

Bunk on Money

The forces of hipsterdom have decreed that any discussion of The Wire as the greatest show in broadcast history are cliche. Nonetheless, I am still following the advice inherent in Bunk Moreland’s  Season 5 admonition to McNultey with respect to monetary theory, “That will teach you to give a fuck when it ain’t your turn to give a fuck”. Until bond yields move in some inexplicable degree in one direction, or any signs of a 70s wage/price spiral pop up, monetary theory will have little or no effect on my investing decision making. If either of those things do happen, however, Mosler is going to make some money off me, along with a giant host of other published experts.

Fidelity and Predicting Currency Values

In the mid to late 1990s the consensus economic view was that the US dollar was significantly over-valued, by between 20% and 40% depending on the year and measuring device. At the time, Fidelity Investments built a decent-sized team of macro specialists looking to “add alpha” to the company’s then-famously index hugging portfolios by predicting changes in global currency values. The team was disbanded in five years not due to lack of effort or expertise, but because global currencies trade with complete disregard to economic fundamentals for years at a time. These were all experts in the field, remember, and although I never saw CVs, since we’re talking Fidelity there’s a 98% chance that all of them came from extra-fancy Ivy League schools. They were not, in other words, retail investors attempting to benefit from reading a couple books from the non-fiction bin at Barnes and Noble published by the Smith and Wesson Literary Fund. For me, the primary lesson from this parable is that currencies are not predictable.

Knowing What You Don’t Know

Knowing that you don’t know is among the most important aspects of investing, for both professional and non-pro investors. The most financially dangerous response to an information vacuum is to reach desperately for a framework that makes things intelligible. It is particularly dangerous to grab at one that just happens to fit your personal politically ideology. (Your most vicious associates will brand you an economist if you do this too often).

Take it for what its worth, but my advice would be to watch and consider. Read Cullen Roche on MMT. Watch the exchanges between Senator Paul and the Fed Chairman. Look for signs and accept those that are contradictory to your current understanding. Don’t, in other words, paint yourself into an ideological cul-de-sac that may cost you a lot of money to climb out of. It is time to learn, but there will be plenty of opportunity to become a believer when its time to give a fuck.

11 thoughts on “Following Bunk Moreland on Gold, Monetary Policy

  1. [...] TRI, “Knowing that you don’t know is among the most important aspects of investing, for both professional and non-pro investors. The most financially dangerous response to an information vacuum is to reach desperately for a framework that makes things intelligible. It is particularly dangerous to grab at one that just happens to fit your personal politically ideology.”  (Interloper) [...]

  2. Dusty44 says:

    (1) People done digging dog face in the banana patch.
    (2) admonition to McNultey with respect to monetary theory, “That will teach you to . . .
    (3) Knowing that you don’t know is among the most important aspects of . . .

    This has to be one of your best, perhaps THE best.

    (1) was an moment of shock and then extended ROTFL. Thank you.
    (2) More ROTFL and recognition of a concise statement of absolute truth.
    (3) Absolutely.

  3. kris says:

    “I can safely write sentences like that because half of this post’s readers have already closed their web browsers and have started composing 2500 word responses to paragraph one.”
    The statement is incorrect. Your readers are quite curious for a brand new angle of view and have had enough of the stale info from other bloggers.
    I am going to take my time to read this one few times since I have a feeling that Dusty44 is correct.

  4. “….there will be plenty of opportunity to become a believer when its time to give a fuck.”

    CLASSIC

  5. kris says:

    “The most financially dangerous response to an information vacuum is to reach desperately for a framework that makes things intelligible.” – Interloper

    €œ”I can live with doubt and uncertainty, and not knowing. I think it a€s much more interesting to live not knowing than to have answers that might be wrong” – Richard Feynman

    Dusty44 is right. This could be your best.

    • kris says:

      And by the way, I know why you don’t comment on my entries any longer, but same as you, I don’t really care. As long as you have something to teach me I’m ok with it. “To be liked”, it has never been the goal of my life, it’s too mediocre.

  6. [...] TRI, “Knowing that you don’t know is among the most important aspects of investing, for both professional and non-pro investors. The most financially dangerous response to an information vacuum is to reach desperately for a framework that makes things intelligible. It is particularly dangerous to grab at one that just happens to fit your personal politically ideology.”  (Interloper) [...]

  7. Geoff says:

    When you start to care, it will probably be too late. Or you will have been correct all along.

    What really concerns me is not the inflation. Heck, I can always buy gold or pay off debts more cheaply. It limits my options for safe investing.

    People will have to chase yield, including pension funds which need a certain rate of return. This increases risk, raises commodity prices, and causes long-term harm.

    • Interloper says:

      I agree. I was parsing words a bit. The key i think is to not believe something so fervently that it takes away flexibility. “fanaticism” was probably a better term to use than “believer”. Pension funds and insurance liabilities will be a huge issue before its over, to the point where i think the rules will change in some way to take stress of off them.

  8. Rohit says:

    what i struggle with is bias and how to overcome it. So much to read, everybody has a bias, how to get to the truth? (or some present-time current version of an unbiased position?) After a while you start to see bias in everything, resulting in being too flexible, will I ever know the instant that I should have cared?

    • Interloper says:

      Yes, problem. It is possible to use and benefit from research while tossing out information that is potentially biased. The numbers, particularly, I just ignore and calculate myself.

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