Eating the Inner Organs of Beasts and Fowls

January 14, 2016

Economy, Investing, Markets

James Joyce

Mr. Leopold Bloom was clearly given to sensuous pleasures but he wasn’t entirely immune to the pleasures of the mind. Following yesterday’s market action, most of us probably feel the need to scale back a little from our sensuous pleasures, such as eating the “inner organs of beasts and fowls”, and give more weight to reflective or cerebral pursuits.

After closely watching market behavior for more than 25 years I am quite capable of boring you with pages of analysis about Kondratieff winters, Elliott Wave Cycles, and Austrian Business Cycle Theory. I could also decide to keep things simple and just talk about the end of the great credit binge that started in 1980.

I could do all these things, but I won’t, because it’s become crystal clear to virtually everyone except central bankers, that, largely because of their actions, we live in a serial bubble economy, where asset prices are only allowed to fall with the utmost reluctance, it being thought “a bad thing,” whenever houses, equities and gasoline, fall in price, especially precipitously. Consequently, everything that can be done to inflate asset prices is attempted, from money printing to interest rate manipulation. While Chinese authorities recently attempted to bolster equity prices by ordering state-owned enterprises to buy stocks, in the U.S. the plunge protection team resorts to more subtle but, in the long run, just as ineffective methods.

What’s to be done? For the average investor theoretical knowledge has proved to be next to useless because what should happen is often prevented from happening by central banks, in the same way that I can temporarily prevent a friend’s bankruptcy by giving them another credit card. Sure, I delay the day of reckoning, but now I’ve also made the problem worse by increasing their debt burden. How and when central banks will choose to act this time or the next time, can only be divined by close attention to the political tea leaves, a skill decidedly lacking in mere mortals.

For those of us with enough time, who require a positive return over and above taxation and inflation, while lacking the requisite divination skills to know when the Fed will step in with QE4 and/or QE5, there is no choice but to stay the course, waiting for a reversion to the mean. After all, from 1926 to 2015 the S&P 500 returned almost 12 percent/year including reinvestment of dividends. While there is certainly no guarantee that the future will be similar to the past, I for one believe that, as long as people continue to innovate and to improve their lives, stocks will generate a decent return over the long run. Yes,  I know that Keynes said “In the long run we are all dead…”

“Mr Leopold Bloom ate with relish the inner organs of beasts and fowls. … Most of all he liked grilled mutton kidneys which gave to his palate a fine tang of faintly scented urine.”  James Joyce (Ulysses)

Please note that this article is not intended as legal or financial advice.

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About Malcolm Greenhill

Malcolm Greenhill is President of Sterling Futures, a fee-based financial advisory firm, based in San Francisco. I write about wealth related issues in the broadest sense of the word. When I am not writing, reading, working and spending time with family, I try to spend as much time as possible backpacking in the wilderness.

View all posts by Malcolm Greenhill


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32 Comments on “Eating the Inner Organs of Beasts and Fowls”

  1. jan Says:

    Hi Malcolm, how refreshing to read an honest assessment (future) Albeit I thought it would be about chopped liver……… Hope you are all good Jxx


  2. matt Says:

    Well, Keynes was an idiot and thus it makes sense the bureaucrats worship his economic theories.

    It’s always good to see you’re still around, Malcolm. How’s the book going?


    • Malcolm Greenhill Says:

      Matt, Keynes may have been wrong on some important issues but he was certainly no idiot. In addition to his formidable intellect and sparkling conversation, he made a fortune on the stock market.

      The less said about the book, the better, at least for now 🙂


  3. rung2diotimasladder Says:

    Nice to have you back!

    Boy I hope you’re right about staying the course. That’s been my so-called strategy.

    I’d actually love to hear about economic theory, but then again, being a philosopher, I tend to like useless knowledge. 🙂


  4. aaforringer Says:

    Good to see you back my electronic friend. Keep writing it will fall into place eventually. Nice article. I was actually thinking about something original for my site, if so you might see it soon, on solar powered cemetery lights.


  5. Duncan Says:

    Glad to see that you’ve returned to the blogosphere, my friend!


  6. chr1 Says:

    Nice to have you back!

    Hopefully, that regression to the mean won’t be too painful, but I think you’re right, the inflating and deflating will continue…don’t get caught on the surface of a bubble.


  7. cattalespress Says:

    So happy to see a familiar face and hear your distinct voice again! Hope you finished writing your book, and I hope it is a great success!


  8. UpChuckingwords Says:

    I’ve missed your wit and intelligence. Lovely to see you again.


  9. dgkaye Says:

    Welcome back Malcolm. Thanks for touching on a ‘touchy’ subject here. Always refreshing to hear your spin. 🙂


  10. authorbengarrido Says:

    Leave off the internal organs of beast and fowl? Not likely. 😉

    I was wondering if, in your professional opinion, stocks are going to remain a good investment as the rich (and even rising) world population starts to fall?


    • Malcolm Greenhill Says:

      Ben, I worry more about debt than I do about population. At some point the U.S. will default on its debt and while that may be a good thing in the long term, it would definitely not be something to look forward to in the short run. However, as usual with these type of events the timing is unknowable.


      • authorbengarrido Says:

        Why now, if you don’t mind? Debt to GDP has been considerably higher in the past, hasn’t it?


        • Malcolm Greenhill Says:

          No, and it’s approximately 40 percent higher than it was in 2007 before the financial crisis.

        • Malcolm Greenhill Says:

          Ben, your graphic refers only to public debt but I was referring to total credit market debt which includes both private and government debt. Check out total credit market debt to GDP and you will see a completely different picture.

        • authorbengarrido Says:

          Ah, got it.

          What do you think is driving all the leverage?

        • Malcolm Greenhill Says:

          A broken political system together with central bank hubris. Even when the Government is not directly to blame they end up being the indirect cause. For example, the build-up of sub-prime loans was influenced by the Government making it plain that they wanted companies to lend to minorities and the credit-impaired and would ease up on regulatory standards. Bank deposit insurance continues to ensure that banks don’t compete on safety just on deposit rates, thus encouraging aggressive behaviors. We no longer have a self-regulating system like the gold standard to keep a check on credit expansion. Most central bankers went to the same schools and have absorbed both monetarism and Keynesian economics with their mother’s milk. Consequently the only thing they know is to keep priming the pumps of credit expansion which only postpones the day of reckoning and leads to malinvestments. Add to this the belief that some institutions are too big to fail and that risk should be socialized, and you get a recipe for runaway credit expansion that will only come to an end with debt default. The tech crash and the 2008 financial crisis are the early warning signs of the end of this expansionary credit cycle that has lasted for over 30 years. As GDP slows down the debt to GDP ratio starts to rise dramatically as it did during the Great Depression of the 1930’s.

        • authorbengarrido Says:

          Although I guess the situation is quite a bit different. The privatization of profit and socialization of loss – basically moral hazard – seems like a likely reason for all the leverage.

          Btw, what are you opinions on the value (or not) of investment banks. I’ve heard some pretty convincing arguments that exotic financial instruments don’t actually have much value.

  11. Beth Says:

    There is no “gag-a-magot” button, so I used the “like” button.


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