Pippa Malmgren’s “Signals”

20 thoughts on “Pippa Malmgren’s “Signals””

  1. Actually, it’s the lack of debt that worries me. Debt is our way of building our future. Interest rates are ridiculously low which is the market’s way of telling us that we need to borrow more. A lot of the problem is that incomes are too low to provide returns on investment. We need more government borrowing, more regulation, higher taxes and more wasteful government spending to generate more personal income.
    I’m also worried about our lack of inflation and the Fed’s paranoid terror of it. Inflation is just the market’s way of managing economic growth. You can’t have growth without inflation. If you start fighting inflation the instant it appears as we do now, you are actively destroying economic growth.

    1. Personally, I think economic growth as we’ve known it for the last seventy-ish years has created multiple bubbles that need to pop since that debt can never be repaid. Then the slate will be wiped clean and we can build the next collection of institutions that will inevitably generate new bubbles with leverage all over again. That’s how economic history tends to play out over the centuries. Unfortunately those really big corrections tend to involve toppled governments, wars, and a fair amount of unpleasantness for a lot of people who get swept up in events beyond their control.

  2. Johnny doesn’t look old enough to remember the great inflation of the 1970s. But what Pippa Malmgren is now saying was said by many then; the ancestors of today’s “preppers.” They were one of the forces behind the revival of the New Right at that time, which led to Reagan. Reagan’s policies did not so much stop inflation as confine it to three areas; housing, health care, and tuition. It was the very technology and globalization that the Trumpites hate that contained inflation in other consumer goods.

    1. I’m plenty old enough to have vivid memories of the stagflation of the 1970’s. I’m also old enough to remember the crash of ’87, and the crash of ’89 and the Asian Crisis of ’97, and the Dot Com crash of 2000, and the crash of 2008… Why are people always so surprised when these things occur?

      I disagree about Reagan’s economic legacy. What Reagan and his associates discovered in the 1980’s was that deficits didn’t matter in the short run. Taxes could go down, spending (particularly on the military) could go up, and voters were thrilled with the growth that resulted in living beyond our means.

      Democrats tend to over regulate, over tax, and over spend. Republicans tend to under regulate, under tax, and over spend. What we’re experiencing now – after thirty five years of a bipartisan borrowing and spending binge – is “later.” The bill has arrived. It’s huge. And it can’t be paid without enormous pain one way or another. Go ahead and bicker over whose to blame and why. Meanwhile, off in the wings, other forces are organizing to knock the Monopoly board off the rumpus room table.

      1. “What we’re experiencing now – after thirty five years of a bipartisan borrowing and spending binge – is “later.” The bill has arrived. It’s huge. And it can’t be paid without enormous pain one way or another.”

        I don’t really want to debate it, but I would just like to note that this is totally debatable. I could easily make an argument that the “bill” is relatively not huge and that it could indeed be paid without enormous pain. Maybe you’re right, and we won’t pay down the debt and inflation will soar and we’ll all be out of work and our country will fall apart Greece-style–but it’s hardly self-evident. Anyway, thanks for the post.

        1. I’m looking at the numbers. Just plain cold numbers. This isn’t about ideology.$18.1 Trillion and rising. 330 million Americans – many of which are children and old people. Do simple division.

          Sure, with continuing economic growth the debt could melt away over time relative to a much larger economy. But without growth – or Heaven forfend, contraction… No. The debt isn’t going away, particularly if you add in an insolvent Social Security system and all the unfunded healthcare costs that are coming with retiring Boomers.

          But hey, I could be totally wrong. I’m open to that possibility.

          1. Hm. Simple division gives me about 50 grand. Big deal. 30 year bonds have an interest rate of less than 1% right now; so the interest in 50k is about 500 bucks a year. So government borrowing is just not a huge problem unless you see a virtually zero growth future. Social security could be fully funded with minor tweaks. Health care spending could easily be half as much as it is now, given that we pay 2x what every other developed country pays. Of course, if climate change hits hard, if resource depletion becomes a huge problem, or if world war three breaks out, then we could be in some trouble, but we would be then even if we had no debt at all.

            Your usual attitude seems to be one of pleasant easygoing bonhomie, so the doomer inflationista side of you is a bit hard to understand, but whatever, maybe you’re right! It’s just not at all obvious or “simple”.

            1. In your calculations are you assuming everyone (infants, the elderly, people who have little or no real income) will each be taking up their $50K share of the public debt? Switch today’s artificially low 1% interest rates to 10%. Are you adding in all the off-the-books obligations that Washington pretends don’t exist like veterans benefits and wars? Are you adding in all the other private debt burdens the population is also carrying? As for debt and WWIII… which is the cart and which is the horse?

              I’m a big believer in failure. Let things fail. There’s opportunity in crisis if you correctly position yourself. Let most people sleepwalk into a future where they can’t possibly pay off their giant student loans, mortgages, car payments, and credit card bills. Let the “minor adjustments” in government entitlements kick in just when lots of people really need them the most. I’m okay with that. I see it all as inevitable. It’s not the end of the world. Society eventually rebalances. We see this playing out in the elections. President Trump/Sanders/Clinton will fix everything… Right? Bring on the wrecking ball.

              I live counter-cyclically. I buy cheap crap in bad locations at fire sale prices that no one else wants. I pay cash or hold very little debt which I pay off quickly. I make continuous modest improvements in these places. Then I hold for the long haul. Eventually culture and the economy shift and my cheap crap tends to do pretty well for reasons most people hadn’t thought about. I’m a happy prosperous well adjusted guy who thinks everything is about to fall apart, and I’m ready to enjoy the crash.

          2. Johnny, I’m back in Alameda on my boat then it’s down S of Puerto Vallarta for a month. Would love to come over and have lunch, I have business in the City anyway. This is a senior trying to surround himself with rational divergence.

  3. The Global debt levels alone might be something that we could work out, if you combine that with increasing pressure from Climate Change and the depletion of ocean sourced food, it’s not hard to see that we are all in for a very rough period. One group that recognizes this exact set of dangers is the Transition Town Network, well worth finding one/starting one and start increasing your and your communities “Local” resilience.

    1. I was an active participant with the Transition Towns movement for several years. In the end I found that there were two kinds of people at the events. One group was there to learn practical techniques for solving tangible problems and to find a likeminded community to work with. The other group was there to express fears and talk endlessly about abstractions without actually taking any real action. I learned what I could, contributed what I could, then moved on – and kept a few good friends along the way.

  4. Great video. I like her views because they represent a rational middle ground between the dollar collapse crowd and the techno optimists. Her “inflation as default” idea makes a ton of sense. Invest in fish indeed.

    I’m not sure about China or Russia’s territorial grabs as a response to QE which seems to be a major pillar of her thinking. I wouldn’t credit world leaders for being as rational as she is, although inflation of hard assets could be an indirect contributor to geopolitical aggression. Then again, what do I know about such things…

    1. My take away is that this is a good time to cash out of paper investments and convert to hard assets like good farm land or mortgage free rental property. But that’s just my “confirmation bias.” Or hey, you could borrow against the value of your home and put all that leveraged money into internet stocks and make a fortune on margin. What do I know? (Well, actually I know enough to not do that…)

      As for the connection between international militarism and resource grabs… What exactly are we doing in Iraq? Oh yes. I forgot. We’re fighting evil doers who hate our way of life while bringing the Arabs freedom and democracy. That’s probably how the Russians and Chinese think of Ukraine and the South China Sea.

      1. No I meant, in that talk she suggests that Russia & China’s adventures are in response to monetary policy, i.e. they don’t expect to get the full value of the T-bills they’re holding so instead they’re using the surplus to fund military excursions. A bit of a stretch. More likely they believe these lands are historically and culturally “theirs” and also it’s a good old fashioned resource grab like you say. In other words, just like us. When things aren’t going well at home, start a little war or two to boost morale.

        Per the hard vs paper assets questions, I’m leaning heavily towards (out of state/country) real estate like yourself. But I do still hold a traditional IRA with straight index funds which is really easy to max out. Whether that’s a wise or foolish decision depends on what happens in the next 20 years (when I can withdraw, in 2036 or so) but it’s money I’m willing to hedge with.

        BTW, given your views and how widely you travel, it seems like you’d be a prime candidate for overseas real estate. Why not Panama, Chile or any of the usual suspects?

        1. I do think about international property as a Plan B. I’ve looked at real estate in Chile (love it) and Canada (love it) and Mexico (love it) as well as other places. But international transactions and ownership are complicated and come with all kinds of additional problems. Having some liquid cash on hand (even as it slowly inflates away) allows for a quick shift to whichever destination may work as situations unfold. Besides, America is a really big place. My guess is there will be somewhere here that will work so I diversify internally from Hawaii to Ohio.

      2. Thanks for the post–but I am pretty skeptical. You write: “My take away is that this is a good time to cash out of paper investments and convert to hard assets like good farm land or mortgage free rental property”. Well, maybe. If high inflation is coming, why mortgage free? Wouldn’t it be great to get a jumbo 30 year loan at today’s low rates and then wait for inflation to make both your rents and your equity soar? On the other hand, you could also acknowledge that people have been warning about impending inflation for many, many years now, and even two recent periods of steeply rising oil prices (which have often sparked inflation in the past) didn’t bring us much–and you might say, “I have no idea what is going to happen, and it might be reasonable to think that the US government’s debt is probably not going to bankrupt it, Greek style, since we are a giant economy and have our own currency, so I’m going to just do my own thing and not worry too much…”

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