Market Sell-Off headlines returned to screens to start the week with major indexes falling to start the week. The S&P closed down more than 2%, at 5,158.
It was another one of those equity sell-offs where your fixed income holdings failed to help you, as yields rose. The 10Y closing at 4.41% and the 2Y at 3.78%
I guess China warning other countries not to side with the U.S. in this trade war and blasting your central bank don’t engender confidence in the future.
If/When This Is All Over Who Will be “Mr. Too Late”
The setup is there to see history is going to judge as “Mr. Too Late”. Will it be Trump viewed as acting too late to quell the likely deleterious effects of his tariff policy, or will it be Powell who was slow to act against inflation and risks being slow to respond to what might be coming for the U.S. economy?
I don’t know the answer, but I wrote yesterday about the need for filtering out noise and finding timeless principles.
Timeless Wisdom From Pope Francis
With the passing of Pope Francis, I thought I would share some lessons that might be useful to everyone, irrespective of their faith.
In late 2023 and early 2024, Pope Francis shared a series of lectures under the title Cycle of Catechesis on Vices and Virtues in which Francis walked through the seven deadly sins (vices) and the opposing seven holy virtues.
There is something timeless in these lectures that can apply not just to personal moral growth, but to professional growth and even to investing.
Acedia (Sloth) vs. Fortitude: while acedia is commonly thought of as “laziness”, it is also a desire to escape from reality. For investors the lesson is to face reality as it is, setting goals that can be reached and to endure and persevere even when results are not visible.
Pride vs. Humility: the proud man always wants to see his own merits recognized and despises others as inferior. “Of all the vices, pride is the great queen.” When it comes to investing, overconfidence and delusions of omnipotence can lead to taking unwarranted risks. The lesson is to cultivate humility, acknowledge uncertainty, seek the counsel of others and make prudent decisions. “Humility is the gateway to all the virtues.”
Envy vs. Gratitude: As legendary investor Charlie Munger said, “Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun.” We all fall victim of comparing ourselves to others and at times the resultant feeling that we are more deserving of success than others. When it comes to investing we see investors' comparison games turn into their own dissatisfaction, which can lead to impulsive and self-destructive decisions. The lesson is to embrace gratitude, to be thankful for what we have and to be comfortable with our own definition of success.
Wrath vs. Patience: Wrathful people always see the other person as the problem and never admit their own defects. Our anger at some real or perceived injustice can cause us to stew on things in our mind and reject reason. The worst part is that time magnifies wrath. When it comes to investing, wrath can manifest in impulsiveness in decision making and losing sleep thinking about whatever market fluctuations have upset us. While wrath is magnified with time, patience is our ally and antidote. It’s starting from a place of being slow to anger, reacting to market fluctuation with composure, patiently adhering to long-term strategies and thoughtful decisions we made when our heads were clearer. "Patience is the virtue of the journey, the virtue of those who are on the move, not those who sit in an armchair and wait for time to pass."
Gluttony vs. Temperance: Gluttony is overconsumption in all forms, it’s about our relationship with material things: consuming not to live, but living to consume. “We have abjured the name of men, to assume another: “consumers”. Today we speak like this in social life: consumers.” When it comes to investing, we fall prey to being over-consumers of financial news and we also fall prey to insatiable appetites for risk taking. We can do better, we can temper our desire for more with discipline, to know when enough is enough, to seek sustainable returns, and respect risk limits.
Lust vs. Chastity: On its face this topic doesn’t seem applicable to investing, but lust is about possession and seeking shortcuts to obtain what we want. In investing lust results in behavior that is seen in short-term thinking, chasing profits, engaging in speculative investments and lapses in ethics. In the financial context chastity is translated to exercising self-control in a manner aligned with ethical standards and a genuine concern for others. Fostering trust, striving to contribute to the broader well-being.
Avarice (Greed) vs. Generosity: An excessive desire or attachment to things, especially money, and a pathological desire for accumulation and compulsive hoarding. “Some rich men are no longer free, they no longer even have the time to rest, they have to look over their shoulder because the accumulation of goods also demands their safekeeping.” Our possessions often possess us when we forget that we cannot take property with us when our time on this earth is up. In investing the consequences of greed are obvious, the unrelenting selfish pursuit of profit setting aside the consequences on relationships both personal and broader. We can counter greed with generosity. Investment professionals can share their knowledge, putting client interest first and acting with transparency.
To summarize:
Walk humbly before markets you cannot control.
Celebrate others' gains without comparing your worth.
Be steadfast in storms; impulse is the enemy of wisdom.
Act with courage when action is called for.
Let generosity, not greed, define your pursuit of wealth.
Feed your mind with wisdom, not noise.
Master desire; invest for what is true and lasting.
We need all the wisdom we can get to navigate today’s financial turbulence. We’ll get some earnings today and see how the 2Y note auction goes.
XTODs:
XTOD: Even if you buy into the arguments for being contrarian, you need a "march to your own drummer" mindset, a time horizon that you control and a strong stomach, to put it into practice. https://bit.ly/3GdfVsv
XTOD: Ricardo offered a clean logic: do what you're good at, and let the market take care of the rest. But Hamilton saw through it. He didn't argue. He dismantled it, quietly, with precision.
He understood that if left to Ricardo’s compass, America would become the world’s farm,
a colony of commodities dressed as a republic. Hamilton looked out and saw Arrakis.
Trump, perhaps, too.
XTOD: Blackstone is now down 40% from its November highs, and is right back at its post-Liberation Day lows. Remember, this is probably the best run manager of private assets in the world, so just consider how your run of the mill PE or VC shop is looking right now.
XTOD: The reason France (and other countries) care, is bc despite all the arguments to the contrary, they need access to USD liquidity provided by the Fed in a Eurodollar crisis. And a new Trump loyal Fed Chair would be less likely to provide it.
XTOD: Kids are surrounded by social forces they don’t know how to name. The civic literacy of the future will involve showing them, at the earliest possible age, the technological, political, and social forces shaping our lives—and helping them develop real agency to contend with them.
https://x.com/AswathDamodaran/status/1914152172867969171
https://x.com/hendry_hugh/status/1913669843527557594
https://x.com/TheStalwart/status/1914398149323726864
https://x.com/SantiagoAuFund/status/1914456261699280909
https://x.com/lukeburgis/status/1914358694441312729
Destruction is not always bad in the long run. I think it is people who see only the short term which causes more problems than good economicly. That is how tyrants can grow there economy differently than a democracy. They can put in long term goals. They can make the short term suffering take place and ignore the results. Then play the long game. If this doesn't work it is because short term people are putting too much pressure on trump. I hope he has leverage we don't know about.
ReplyDeleteThanks for sharing this. I agree that many of problems come from short term thinking and that real structural reform requires a long view.
DeleteWhere I would part ways is on the idea that tyran
That said, history shows that while authoritarian systems can force change quickly, they often leave deeper damage. Corruption, bad incentives, and distrust pile up under the surface.
In free societies the challenge is harder because reforms must be chosen rather than forced. But change that is voluntary tends to be stronger, more resilient, and more lasting.
The real test of leadership in a democracy is getting people to choose the harder, better path without giving up freedom.