The boardwalk: We were leaning forward on the rail of the boardwalk, looking South at the Atlantic Ocean. “Nothing clears my mind more than watching the waves come in and out” said Allen Weinstein. I swear he could do voice overs for Al Pacino. “I grew up here”. Growing up in Long Beach, NY had its appeal. Still does. Another wide body commercial airline streaked across the sky, heading to JFK.
Every wrinkle on his face tells another story, teaches another lesson. I guess at a certain age, wrinkles become connected. While I studied his face, not being able to spot where the lessons start and end, I know I’m so lucky to have a mentor like him. I wonder if he worries that he didn’t teach me all he can.
“The world’s central bankers are reaching into their old bag of tricks again”. Allen went on “But it’s just the same tricks that Bernanke and Yellen used. Lower rates, more Quantitative Easing; it all would have worked when the global economy was just Japan, Europe, and the US. But now it’s China and India in the mix. Their economies are too different from ours to react to our policy tools. I hope Powell realizes that very soon. Because if he doesn’t, we either slide backward or Trump fires him”
“There’s no such thing as Government funded programs. There are only tax payer funded programs” Today is the first scorching hot day in New York this year. The breeze at the beach is no match for the heat today, which is no match for the hell-on-earth heatwave that’s burning Western Europe this week. “No great economy has ever remained great once its leverage stopped growing. That’s the biggest risk to the global economy; no more access to leverage. We had a taste of what that’s like when Lehman went under. The only way we could deleverage is to grow the economy, grow the equity part of the balance sheet”
As Xi and Trump meet in Osaka, Japan this weekend to carve up the world into a new world order, the rest of it twists and turns to get attention for fear of being left out. Russia, Iran, India; all rattling what little leverage they have left to get a seat at the table. But the Chinese and the US don’t need them, which is exactly why there’s the feeling that something could ignite at any time; fear of a geopolitical miscalculation will be ever present. Russia invades Ukraine, sends bombers to Venezuela, and props up the Syrian regime. Iran sponsors terrorism while it seeks nuclear weapons to prevent it from being ignored, without an iota from its leadership of how it will add value to the world in exchange for commerce and security. India ratchets up protectionist policies, sending more of its citizenry into abject poverty.
Shale oil changed everything. Mid-East oil producers have become marginalized. Russia sees its future as bleak as ever. And as broke as ever.
“I think my grandchildren like to go to McDonald's more to use the food ordering kiosks than the food”. He’s not entirely wrong. Automation will balance out the labor cost advantage that any nation has over us. But the price for that is a domestic labor force that can’t adjust quickly enough, if at all. “That’s why we’re going to see more tax payer funded social programs. We probably would have let China keep steeling our technology in exchange for its cheap labor, except that when they started to use it to build aircraft carriers, it was time to wake up” continued Allen.
The scariest thing about recessions is that when the favorable conditions that led to the preceding economic expansion come to an end, we can’t imagine that we’ll get a new set of conditions that’ll lead to the next expansion. “But I’m not a pessimist. Too many good things have happened to me in my life for me to be negative” he went on, “the thing that separates us from the machines is that we have curiosity, motivation, and satisfaction. That’s why we as a species don’t give up. Machines, AI, whatever you want to call it, are just tools. We master our tools while the Chinese use tools to master their citizens. That’s the difference between us and them. They’ll squelch those qualities and we’ll use them”
One last parting thought before we leave, he said “Investors are a funny crowd. Their confidence can climb tenfold by being right just once" That is exactly what makes Allen a great investor. He knows what works for him, which is the hardest thing to know in all of investing.
Now, check out the video, does stock size matter, below and have a great weekend,