This Week’s Message: What Interest Rates Say — And — Why I Sleep Well At Night

Just listened to an interview with Jim Grant, editor of Grant’s Interest Rate Observer, I’ve been a fan of Jim’s my entire career. He’s quite the historian, and an utterly brilliant thinker.

Here’s a slice:

“We the human species are an excitable crew. We tend to respond to very low rates with a lot of redundancy, a lot of excess, we do things too much. You can’t just own stocks at 100 times earnings, you gotta buy some more at 200 times earnings because it’s going up; that’s the way of the human beast. But the central banks do us no favors when they indulge our human propensities toward over-indulgence by sponsoring fictitious interest rates. The rates we see nowadays, whether or not you call them fictitious, they are rates unseen in millennia, which is saying something.”

While I suspect, as Jim says in the interview, that we can debate whether or not present interest rates are “fictitious”, we simply can’t deny that central-bank-spawned millennia-low interest rates say something about either the present state of general conditions, or perhaps something about the powers-that-be’s knowledge of what lies beneath when the economy ultimately dips down to take a look; which would be the corporate debt bubble we’ve been warning of herein.

On a separate note, Jesse Livermore has for sure been the most-often quoted figure herein for the past few years. My use of the term “general conditions” comes from the pages of Reminiscences of a Stock Operator, the book that tells of the exploits of the great trader of the 1920s.

I think the book has held me captive for years largely because — while it’s been truly enlightening for me in many ways — it confirms something that I discovered early in my career, the something that keeps me confident, and sleeping well at night, as I own the massive responsibility of managing other people’s money. 

As Livermore put it:

“….my greatest discovery was that a man must study general conditions, to size them up so as to be able to anticipate probabilities. In short, I had learned that I had to work for my money. I was no longer betting blindly or concerned with mastering the technic of the game, but with earning my success by hard study and clear thinking.”

“That is about all I have learned—to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience.”

Now, to be very clear, with regard to taking a position and sticking with it “without a twinge of impatience”, as we apply it here at PWA, it means being patient with our positioning as long as it comports with our assessment of general conditions, regardless of the latest price action in stocks. When that assessment changes — that is, when the risk/reward setup changes — we change our positioning. 

Have a great weekend!


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