93 years of perspective

It is very cool in Paris. We have put on a sweater. To bring you fully into the picture, we are sitting at a sidewalk café in the 16th arrondissement, having a café crème with our mother.

We have periods of real joy in our lives, but we count on our natural tendency to gloom and depression to get us through them. Our mother lacks this essential quality.

A woman walks down the street, trailed by a small, white dog. The poor old girl looks sorely used, we think. As if she ran over her other dog, and got beaten up by her husband.

Mother: “Oh, look at that cute dog.”

Two gypsy women came along.

“I love their dresses,” said his mother. “They are so colourful.”

A handsome, well-built man, with a full head of jet-black hair, comes ambling down the street. He looks friendly, happy, confident.

Jerk, boulevardier, flaneur, we think to ourselves.

“What a nice looking young man,” says materfamilias.

We don’t know how much more of this looking-on-the-bright-side we can take.

“Mom, do you have any idea how many people have been driven mad by cheerfulness?”

“OK, I’ll try to control it. Look, there’s a poor man with a sad look on his face,” she said, pointing to a grumpy SOB getting out of his car.

“No, you just don’t get it. You’re not supposed to be sympathetic. He probably deserves to be sad.”

But we realised it was hopeless. There is just no helping some people.

Later today, we’re going out to repossess a truck, used for moving horses around. Elizabeth loaned it to a fellow rider. Now, he won’t give it back.

“You can never trust anyone”, says a friend.

That seemed like a grim assessment of human nature. But of course it is true. So is the contrary: you can always trust everyone.

One of our favourite dicta: ‘people always come to think what they need to think when they need to think it’.

When they think they should be polite and helpful, they are. When they think civility no longer serves their interests, they stab you in the back.

In an ideal market system, civility pays. Wealth, power and status are earned in exchange for goods and services. The more you give, generally, the more you get.

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But let him take your gun, your vote, or your vehicle, and even your best friend may turn into a monster. Especially if he’s under pressure. You can trust him, but only to act like a normal man in his circumstances.

You can always trust investors too. And the markets themselves. They always do what they ought to do, under the circumstances. Our challenge is to understand the circumstances.

The Dow was up 22 yesterday. Gold held above $1,300. Volatility seems to be a little antsy.

What kind of pressure is this market under? What might cause it to stop acting so sweet and cooperative? What might make it turn nasty?

Tomorrow, the GDP figures come out. They are likely to be disappointing, because the ‘recovery’ has been a fraud from the get-go.

The economy is stuck in a low-growth, low employment, semi-depression mode, largely because of the Fed’s efforts to stimulate it.

Cheap money has corrupted the entire economy, twisting it away from real long-term investment and business building toward fast-buck speculations, financial engineering and zombie activities.

David Stockman: “Since the turn of the century, in fact, real CapEx growth have averaged only 0.8% annually, or hardly one-third of its prior historical rate; and the true measure of future productivity growth— net investment in real plant and equipment after capital consumption allowances—has actually declined by 20% since 1999-2000.”

Capital investment is what really lies behind productivity and prosperity. Without it, the economy staggers:

Hourly wages are no higher than they were in 2008.

Real household income has declined, even for the top 5%.

Take out health care and interest expenses and almost everyone’s real, disposable income has gone down.

Though part time and temporary employment has risen, there are actually 5% fewer real, or “breadwinner”, jobs than there were in 2006.

When these circumstances are more fully understood, stocks will turn sour.

“I grew up in the Great Depression,” says mother, with 93 years of perspective. “Things are so much better now.”

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