Edward Quince's Wisdom Bites: Nomads and Motorcycles: The Hard Work of Attitude and the Value of Struggle

If the Nomad letters teach us anything, it’s that success is never a smooth or guaranteed ascent. The adventure continues, the trials never end, and unhappiness and misfortune are bound to occur as long as we live.

The Nomad founders were open and honest about their mistakes. They understood that knowing how to think (philosophy, psychology) was just as vital as any technical method. When reflecting on their approach, they concluded that the greatest challenge wasn’t identifying opportunities or calculating valuations—it was “having the right attitudes.”

Attitude is the ultimate margin of safety—because no model or forecast can protect you from yourself.

But this attitude isn't about naive blind optimism. It’s the quiet strength that endures uncertainty and learns from it. As Robert Pirsig reminds us, problems aren’t solved by abandoning rationality, but by expanding it. Growth occurs through contact with reality, by working, adjusting and learning "on the job" in the arena of life. The Nomad partners, like the protagonist on the motorcycle, learned to absorb the jolts and imperfections of the road rather than curse them.

We often view setbacks as external failures—a bad boss, a rogue market, unfair circumstances. But both Nomad and Pirsag suggest a harder truth: progress demands internal confrontation. The greatest damage often comes not from volatility itself,  but from our "inability to perform probability-based thinking", to hold composure when uncertainty reigns.

The Financial Takeaway:

The deepest form of growth is forged through struggle. True excellence emerges when talent is tempered by humility and discipline—when effort becomes craft.

Nomad’s story reminds us that enduring success is not about the absence of pain, but the persistence of purpose. The “game of life,” as Pirsig wrote, “is the game of everlasting learning.”

Stop viewing work as a mere transaction for money; see it instead as the pursuit of meaning. Maintain the right attitude. Accept that “everybody struggles.” And when the road jolts you—because it will—remember that mistakes don’t define you. They refine you. Choose growth, and keep going.

Edward Quince's Wisdom Bites: The Hard Truth of Fiscal Discipline – Or, Why We Keep Kicking the Can

Welcome back to Edward Quince's Wisdom Bites, your daily reminder to cut through the noise and focus on what truly matters. Today, we're diving into a topic that feels perennially relevant, yet consistently misunderstood: fiscal discipline. While the market gyrates and pundits clamor, the wisdom of the past, and a dash of intellectual humility, might just offer the clearest path forward.

The Elephant in the Room: Mounting Debt and Deficits

It seems that every day brings fresh warnings about the U.S. fiscal situation. From Moody's putting U.S. sovereign debt on negative watch to calls about a "Minsky moment" from a fiscal situation deemed "impossible," the chatter is omnipresent. There's a persistent concern among investors about rising U.S. debt levels. Even Fed Chair Powell has acknowledged the national debt as unsustainable. We're talking trillions added to the debt, often with hundreds of billions more if expiring provisions are extended. It appears that policymakers sometimes act as if the answer to all problems is simply more government spending, as if there's no such thing as an uncovered deficit.

Historically, Alexander Hamilton warned Congress in 1790 that "the creation of public debt should always be accompanied with the means of extinguishment" as "the true secret for rendering public credit immortal". For the first 175 years of the nation, the U.S. largely adhered to this "Hamilton Norm," issuing large quantities of public debt only during emergencies. One can certainly wonder if we've violated that norm, and if it matters.

The Fiscal Theory of the Price Level (and Why it Matters)

While Modern Monetary Theory (MMT) might "diss" the idea of bond vigilantes and suggest governments can finance all spending without borrowing or taxes, other compelling theories offer a starkly different view. John Cochrane, a leading proponent of the Fiscal Theory of the Price Level (FTPL), suggests that if fiscal policy is undisciplined, the Fed's actions alone may not lower inflation. In fact, if the Fed raises interest rates, it raises interest costs on the debt, and if taxes don't rise or spending doesn't fall to pay those costs, there's "no reduction in inflation". He calls this "unpleasant interest rate arithmetic".

The FTPL posits that inflation occurs if debt exceeds faith in a country's long-run ability and will to repay it. This theory suggests that the Central Bank can only "move inflation around over time," and ultimately doesn't have full control if fiscal policy isn't consistent with price stability. It highlights the "real danger" that comes from "encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking".

The Fed's Dilemma: Independence vs. Politics

The Fed may believe a certain policy is correct but worry it will appear politically motivated. Peter Stella's definition of central bank independence is "the ability to raise interest rates when the Treasury doesn't want you to," which is almost always the case due to the cost of debt. Powell has stated the Fed "do not consider politics in our decisions. We never do. And we never will". However, the macroeconomic models themselves implicitly include some budget constraints and fiscal-monetary coordination. If fiscal policy is the major driver of inflation, how is the Fed supposed to fulfill its price stability mandate?

What's the Wise Play? Beyond the Headlines.

In a world loud with information, where everyone has a "take," the key is often to mute the unnecessary and discern what truly matters. As the wisdom from the blog frequently emphasizes, "Clarity comes from subtraction, not addition. Remove the noise, the distractions, and the unnecessary. What truly matters will emerge".

Here's some wisdom to help you navigate the fiscal noise:

• Embrace Intellectual Humility: Recognize that forecasting the future is a "fool's errand," and even "experts" are often wrong. As Morgan Housel wisely noted, "Real optimists don't believe that everything will be great...Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way".

• Focus on What You Can Control: Your behavior matters more than any forecast. Instead of reacting to every headline, cultivate discipline and a robust process. As Charlie Munger advised, "It's waiting that helps you as an investor, and a lot of people just can't stand to wait".

• Prioritize a Margin of Safety: Benjamin Graham's concept of a "margin of safety" is about "rendering unnecessary an accurate forecast of the future". This means building flexibility, avoiding excessive leverage, and having a buffer to withstand unexpected events. "Know your goals, mitigate unwanted risk, prepare and position the best you can for when the unknown or unexpected occurs, because life is uncertain, but remember without risk there is no return".

• Learn from History, But Don't Over-predict: "History doesn't repeat, but human nature does". Studying past financial disasters can impart "invaluable lessons on what to do and what not to do at far lower cost than making the mistakes oneself". However, be wary of thinking "this time is different".

• Question the "Why": Understand the motivations and incentives of those providing information. As Charlie Munger said, "I never allow myself to have an opinion on anything that I don't know the other side's argument better than they do".

Ultimately, fiscal discipline—or the lack thereof—has profound consequences. While you can't control government policy, you can control your own approach to navigating an uncertain world. Remember, "The greatest shortcoming of the human race is our inability to understand the exponential function". This applies not just to compounding wealth, but also to compounding problems.

Daily Economic Update: June 4, 2025

Yeah, we’ve got ‘em

Jobs that is, 7.4 million job openings. The internals were pretty steady.  Who has the upper hand? It’s a bit of “it depends”. If you work in healthcare, great, in other industries the story is more mixed.

But at least a few things are going nuclear.

Radioactive Facebook?

When I think of social media companies and the term “radioactive”, I tend to associate them in a pejorative way, one in which both can cause harm.  But nowadays when social media is going radioactive, it literally means they are buying nuclear power, specifically to power AI that sits inside data centers.  Yesterday, Meta announced they’ve entered into a 20-year agreement to buy nuclear power from Constellation Energy’s Clinton nuclear facility in Illinois. 

20 years seems like forever in the AI timeline, but things take time. Like growing the Federal debt level.

Like Radioactive Decay, There Are Exponents

Speaking of things that seem exponential, Ray Dalio promotion and his fears of the U.S. decline.  Yesterday, Ray promoted his new book, “How Countries Go Broke” with a LinkedIn post.

In the post, Dalio reminds us that no matter how you cut it, even when you can print and tax, credit cycle dynamics are the same as Hyman Minsky theorized and we discussed back in January.  

Dalio uses the human circulatory system as his analogy. Deficits are like plague, the deficits drive the supply of debt, the amount of which can overwhelm demand and act as plague breaking off, which ultimately causes a heart attack. Central banks’ can print to try to alleviate the blockage, but it distorts the normal flow of the system and doesn’t solve the problem. For Dalio the only solution is austerity and the accompanying lower rates.

Both Dalio and Treasury Secretary Scott Bessent both share a solution that is focused on 3% interest rates, reducing the budget deficit to 3% of GDP.

But What If You Created The Circulatory System In The First Place?

That’s likely what MMT proponents would retort to Ray’s analogy, after all, it’s your system, your currency, only you can cause the heart attack.  The debt Dalio’s worried about, that’s not plague, it’s actually the blood, if you don’t create the money, the system stops. And interest service on debt, that’s nothing more than a policy choice.  The real constraint isn’t the debt or the interest costs, it’s inflation.  Unless you have inflation, you have fiscal space and the MMT crowd would say you should use it.

And Speaking Of Inflation

Fed Governor Lisa Cook didn’t sound overly convinced that inflation won’t remain a problem in light of trade policies and other factors.

Bridging Common Ground

What if both Dalio and the MMT crowd are right?  What if you just need a way to connect them.  Perhaps there’s where the concept of Fiscal R-Star comes into play.  Remember, this concept is the equivalent of the neutral rate of interest for monetary policy, it’s the interest rate where fiscal policy is neutral.  In essence it’s the idea that deficits can be destabilizing, but only when they exceed the economy’s ability to absorb them without excessive inflation or crowding out.

Just Say What’s On Your Mind: “It’s A Disgusting Abomination”

One Big Beautiful turd?  Maybe, at least if you’re Elon. He’s certainly not ascribing to MMT - he tends to be a fiscal theory of the price level guy.  In a sense, good for Musk for calling out the pork in this bill, as someone who at least reportedly cares about government waste, he at least needs to be consistent.

But That’s A Problem For Another Day

Until the fiscal problem is our fiscal problem, it doesn’t seem to be a problem (for now). The S&P rose to 5,970 led by AI chip stocks and optimism that falls into the TACO trade narratives.

The 2Y treasury yield moved up to 3.96% and the 10Y was at 4.47%, both flirting with their somewhat key levels.

We’ll see what ISM Services and the Bank of Canada has in store today. 

Until then you can debate fiscal narratives.

XTOD’s:

XTOD: Bitcoin’s whole story is a staged illusion, scripted by insiders to convince you governments and institutions are “all in” — and that this market is booming on real demand.  

This is the LARGEST bubble in human history, set to go down as the largest financial scandal ever.  Ask yourself: If Bitcoin is so decentralized and powerful…Why do the same few entities control the narrative, the wallets, and the laws?  It's all smoke and mirrors. Here’s proof. 🧵

XTOD: "Diplomacy turns out to be quite different from reality TV and real estate. The best diplomacy is conducted secretly, not on live TV. And when a national security strategy goes awry, bankruptcy is not an option. There is no Chapter 11 for a failed foreign policy."

XTOD: hot ai summer lfg…lots of great releases coming!

XTOD: In November next year, we fire all politicians who betrayed the American people x.com/matt_vanswol/s…

XTOD: Learn to ask, “If this is the only thing I accomplish today, will I be satisfied with my day?” 

Don’t ever arrive at the office or in front of your computer without a clear list of priorities. You’ll just read unassociated e-mail and scramble your brain for the day.    Compile your to-do list for tomorrow no later than this evening. I don’t recommend using digital to-do lists, because it is possible to add an infinite number of items. I use a standard piece of paper folded in half three times, which fits perfectly in the pocket and limits you to noting only a few items.   There should never be more than two mission-critical items to complete each day. Never. It just isn’t necessary if they’re actually high-impact.   If you are stuck trying to decide between multiple items that all seem crucial, as happens to all of us, look at each in turn and ask yourself, If this is the only thing I accomplish today, will I be satisfied with my day?  To counter the seemingly urgent, ask yourself: What will happen if I don’t do this, and is it worth putting off the important to do it?

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Daily Economic Update: June 3, 2025

Sorry, Busy Rating Private Credit Deals

Sorry I was busy rating private credit deals and didn’t see what happened in markets yesterday. Have you seen these headlines, rating agency Egan-Jones has rated some 3,000 private credit deals with a team of just 20 analysts.  I figure I can get to work and rate a solid 150 deals in the next couple of months if I stop writing this blog.  Why do private credit ratings matter and why is this even a story? Well it matters for institutional allocators who want to invest their insurance or pension capital in private credit funds.  It’s unknown to me whether banks look at any of these ratings, but the story of banks effectively “re-tranching” themselves by lending to private credit funds rather than making the loans that private credit makes to mid-market businesses. Nonetheless it’s not lost on everyone that a loan carrying a double-digit interest rate is probably pretty risky, but investment grade?  Nevermind I’ll just get back to the stack of 150 deals I’ve been assigned and rate them as high as I can.  

Rating private credit deals is probably more interesting than hearing about tariffs.

Will Trump and Xi meet this week? 

Despite signs that things are moving the wrong direction between the U.S. and China’s trade dispute, there was some optimism that Trump and Xi might speak as soon as this week.  And some optimism is all you need to send stocks higher.  The S&P edged up to 5,936.

Bonds didn’t fare as well, with the yield curve steepening some despite weaker than expected manufacturing data.  As of the time of this writing, the 2Y yield was 3.95% and the 10Y 4.45%. The narrative surrounding yields continues to focus both on the short-term inflationary impact of tariffs and the longer-term deficit concerns. 

Or maybe yields and stocks are all just a growth story, after all the Atlanta Fed GDP Now is estimating 4.6% GDP for 2Q.

Double My Steel Please

On the day we’ll get some labor market signals from the JOLTS report and await whether tariffs on steel and aluminum go up to 50%.

Back to rating—only 149 deals to go,” or “If you need me, I’ll be printing triple-Bs.”

XTODs

XTOD: It’ll soon be 2 years that Real US 10s rates have been at or around 2%.   The only other recent period when a sustained level close to or above 2% was observed started in late 2005 and ended with GFC.  2% real is very taxing.

XTOD: In the US housing market, there are currently 34% more sellers than buyers. Sellers haven't outnumbered buyers by this much ever in data going back to 2013: Redfin. Redfin expects home prices to drop 1% by the end of the year as a result. h/t 

@RenMacLLC  https://redfin.com/news/sellers-vs-buyers-price-impact/

XTOD: On June 2, the #GDPNow model nowcast of real GDP growth in Q2 2025 is 4.6%: https://bit.ly/32EYojR. #ATLFedResearch Download our EconomyNow app or go to our website for the latest GDPNow nowcast: https://bit.ly/2TPeYLT.

XTOD: this is gold https://pbs.twimg.com/media/GsF5LXQaUAQYKYA?format=jpg&name=900x900

XTOD: 60% of young adults say their lives lack purpose.  Here are 7 questions that can help you find direction: 🧵….4. What’s your sentence? One sentence. That’s it. 

“He helped people find their voice.”   “She made science accessible.”   “They made work better for everyone.”  Distill your life into a sentence—and aim toward it.

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Daily Economic Update: May 28, 2025

I’m Not Unconfident

It was a good day for equities as we head into Nvidia earnings today. The combination of soaring consumer confidence and renewed tariff optimism seemed to do the trick. While I’m still not sure what to make of sentiment data these days, there is no denying that the Conference Board data was positive.  The index rose to 98, well above expectations and with solid internal metrics, including a slight decline in inflation expectations.  Consumers also reported that “compared to April, purchasing plans for homes and cars and vacation intentions increased notably, with some significant gains after May 12.” 

And if you think consumers and “retail” are a contra-indicator then this observation might give you pause: “With the stock market continuing to recover in May, consumers’ outlook on stock prices improved, with 44% expecting stock prices to increase over the next 12 months (up from 37.6% in April) and 37.7% expecting stock prices to decline (down from 47.2% in April). This was one of the survey questions with the strongest improvement after the May 12 trade deal.”

The S&P closed at 5,921.

I’ll Keep Spending Until Ricardo Is Correct

I’m old enough to remember when deficits caused consumers pause, now they seem to ramp assets. 

Economists used to have a tidy theory to explain how deficits might behave in practice.

Back in the early 1820’s economist David Ricardo posited what is now known as “Ricardian Equivalence” a theory that if governments resorted to issuing bonds rather than raising tax revenue, consumers would ultimately save the deficit funds in anticipation of higher future taxes. In short, deficit-financed fiscal policy may have no impact on aggregate demand.

With fiscal deficits and “bond vigilantes” part of the current financial lexicon, there is seemingly no evidence that Ricardian Equivalence holds in the U.S. today. In fact, it seems like recent trends suggest exactly the opposite.  For example, consumers spent the Covid stimulus (likely rightly so), and even after incessant headlines about deficits, consumers continued to run up debt and spend.

So what gives? Is it just that we all think that deficits don’t matter, or that we don’t think tax rates will be raised until long after we’re gone, or that we’ll grow our way out of it, or in today’s attention economy are we just oblivious?

As usual, I don’t know, but if Ricardian Equivalence is a lost cause, it would seem like there could be some investment implications as continued deficits fuel demand.  A couple of possible investment implications would be that strong stimulus via deficits is likely to support cyclical stocks or other sectors seen as beneficiaries of the deficit spending. Of course deficit-fueled growth could just as easily see inflation, “crowding out”, and perhaps instability (if you truly don’t think you’ll ever get paid back in real terms).

It’s Complicated

Now overlay tariffs into this whole discussion and “it’s complicated”.  You see tariffs are taxes paid by importers but then we might have tax cuts for consumers, which as we discussed above, are likely just to be spent, then do we have rising demand crashing into constrained supply? That would seem to be a recipe for the dreaded stagflation.  

Perhaps a higher pressure economy coupled with AI will lead to a productivity boom and solve all problems. Or maybe Crypto Solves This…sorry I just love saying that.  

Until Our Problems Are All Solved

In the meantime, U.S. yield pressure has abated some with the 2Y back under 4.00% (at 3.99%) and the 10Y back under 4.50% (at 4.45%).  And even for all the USD hate, the dollar index (DXY) still is above where it spent most of pre-Covid.

We’ll see if Nvidia delivers the AI miracle, or if we’re just buying GPUs at the top again.

XTODs:

XTOD: Mohnish Pabrai on The Investor's Podcast: https://pbs.twimg.com/media/Gr-PEbzXUAAxh7s?format=jpg&name=900x900

XTOD: Saying “it might bounce back” is not a great argument, and is not “especially true” of laddered bond portfolios.  Myths never die. This is #10.  https://aqr.com/-/media/AQR/Documents/Insights/Journal-Article/My-Top-10-Peeves.pdf

I feel so defeated

XTOD (P.S. I didn’t forget): Interesting, so Michael Saylor is refusing to publish on chain proof of $BTC reserves...How quickly everyone forgets $MSTR was found guilty of accounting fraud in 2001.  🤫 https://x.com/i/status/1927190678724850120

XTOD: Ego Is The Enemy. You’re not as good as you think. You don’t have it all figured out. Stay focused. Do better.

XTOD: Ethics and Human Well-being:  Spinoza proposed that happiness or "blessedness" comes from living in accordance with reason and understanding the necessity of all things. 

Note that this is a very stoic thought. https://pbs.twimg.com/media/Gr9HoBTWwAAtElB?format=jpg&name=900x900

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Daily Economic Update: May 13, 2025

 “Insidious non-tariff trade barriers.”

Insidious non-tariff trade barriers, that’s the terminology Treasury Secretary Scott Bessent repeatedly uses when discussing some of the challenges with fully getting to fair trade with China.  We talked about certain ways countries support their exports in this post back in February and as of now it doesn’t seem much progress has been made in addressing those issues. 

Nonetheless the 90 day pause on reciprocal tariffs, leaving just the 10% baseline plus the 20% fentanyl surcharge remaining, was welcome news to the market - sending the S&P up over 3% to 5,844.  

Term Premium

Ahead of today’s CPI report, rate cuts are being priced out. We're down to just two cuts for the balance of 2025 and we’ll see if the CPI report changes that.  The reason for the repricing seems to largely be the market pricing out near term tariff induced recession risks.  The 2Y Treasury ended the day reclaiming a 4 handle, ending at 4.04%.  

Out on the curve it’s been a minute since we talked about it, but “term premium” could still be a a topic to key your eyes and ears on, as the bond market continues to reassess the amount of excess yield they need to move out on the yield curve and remember topics like deficits and the loss of U.S. exceptionalism, oh and that whole topic of the credibility of the Fed.  Seems to me there could be plenty of reasons we shouldn’t forget about the fact that term premium can be a time varying variable.

CPI

Even with the U.S.-China reciprocal tariff pause, do we still have to worry about bullwhip effects?  Before we worry about that, the market will be looking for signs of tariff related impacts in the inflation data. Of course market participants also won’t really know what to do with any tariff related inflation data in the coming months because there is little agreement as to whether the inflationary impact of tariffs is temporary or more permanent. 

In the meantime could hotter than anticipated inflation coupled with trade optimism lead to even less certainty of rate cuts in the year ahead?  And what would Trump think about that?

XTOD’s:

XTOD: You’ve got to hand it to President Trump. He has convinced everyone that a 30% tariff rate on China, and a 13% average tariff rate on the world (was 2.5% in 2024), are both normal and manageable. Nothing like a 10-percentage point levy on this $30 trillion beast called Global Trade. The Art of the Deal is working brilliantly.

XTOD: As I predicted in the game of chicken between Trump and Xi it was Trump to blink and chicken out. The tit for tat trade war escalation started by the US would have spiked US inflation, led to massive supply chain disruptions and would have triggered a serious US and global recession that would have doomed the GOP and the MAGA grand goals by the 2026 mid term elections . So Trump had no choice but to blink while receiving almost no concessions from the Chinese side, not even an agreement like the one in 2019 to buy more US goods such as ag goods. Such modest concessions may emerge during the 90 day period where negotiations will take place to “reset” trade but so far Xi is the clear winner of this trade war .

XTOD: NEW TONIGHT: Our reaction to the House Ways & Means and Energy & Commerce bills out today, ahead of tomorrow's markups... or, "A Tale of Two Committees."  

The Ways & Means draft includes trillions of dollars in new and expanded tax cuts – some temporary and some permanent – along with some new savings to offset a small portion of them.  The Energy & Commerce Committee, meanwhile, put forward over $900 billion of offsets. 

Taken together, the two bills are likely to add trillions of dollars to the debt and set the stage for hundreds of billions or trillions more if expiring provisions are extended.  The following is a statement from CRFB President  @MayaMacGuineas : https://crfb.org/press-releases/tale-two-committees.

XTOD: 21 lessons from “A Few Lessons From Warren Buffett” (an 81 page book full of Buffett’s wisdom)

1.  A funny thing about life: if you refuse to accept anything but the best you very often get it. 

2. The truly big investment idea can usually be explained in a short paragraph.

3.  Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.

4.  Loss of focus is what most worries Charlie and me.

5. When a problem exists, whether in personnel or in business operations, the time to act is now.

6.  The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.

7.  A compact organization lets all of us spend our time managing the business rather than managing each other.

8.  Nothing sedates rationality like large doses of effortless money.

9.  The most elusive of human goals: Keeping things simple and remembering what you set out to do.

10.  Just run your business as if: (1) You own 100% of it; (2) It is the only asset in the world that you and your family have or will ever have; and (3) You can't sell it for at least a century.

11. The right players will make almost any team manager look good. 

12.  Just tell me the bad news; the good news will take care of itself. 

13.  Our managers have produced extraordinary results by doing rather ordinary things—but doing them exceptionally well.

14.  It's difficult to teach a new dog old tricks.

15. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.

16. Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity.

17.  Our experience has been that the manager of an already high-cost  operation frequently is uncommonly resourceful in finding new ways to add to overhead—while the manager of a tightly-run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors.

18.  Tomorrow is always uncertain.

19.  The trick is to learn most lessons from the experiences of others.

20.  In allocating capital, activity does not correlate with achievement.

21.  The less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.

Download more of Buffett’s ideas into your brain by listening to episode 202.

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