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.