5000 Years Is a Long Time

5000 Years Is a Long Time

By Julien B. Booth

September 11, 2019

Good Afternoon:

I hope this note finds you doing well.

The key takeaways on a brief note:

1.  Q3 Earnings* growth has slowed materially;
2.  Interest rates have continued to fall;
3.  Real estate, utilities, and Gold continue to perform;
4.  The stock market is absolutely dependent on the Federal Reserve; and

5.  5000 Years is a long time.

There is an absolute incessant focus on the actions of the Fed to cut short term interest rates.

With stocks near-all time highs, solid employment, and benign inflation this “Trump demand” is merely to prop up asset prices.

Drug metaphor warning – we are hooked on cheap money, not unlike heroin, cocaine, or methamphetamine.

The focus on the short-term results and the political outcome is frightening, but our new reality.

Since my original draft on Monday PM we now have this tweet from President Trump:

Interest rates serve an incredibly important function – setting a cost of capital.  All capital decisions are dependent on natural hurdle rates to justify and fund their pursuit, project future asset/liability matching, pension funding, etc. etc.

The long-term implications of lower rates are defined; it destroys banking, insurance, and financing that is dependent on spread and duration based lending/investing/funding, etc.  See Japan since the late 1980s.

Trending back towards the 0% bound on rates merely encourages debt-fueled speculation and diminishes our currency’s purchasing power.

Governments have NEVER been good long-term stewards of fiat (paper) currency. The U.S. Dollar has lost 95% of its purchasing power value since the creation of the Fed.  But we feel richer they say!

We are in new waters and will protect, then grow, your capital accordingly.

Have a great day.


*earnings used to matter to stock investors