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Three Things I Think I Think – Hump Day Edition

Okay people. Just 2.5 more days and we’re there. You can make it….In the meantime, here are some things I think I am thinking about:

1 – Why Bull Markets are Hated.  Here’s a great piece from Josh Brown about bull markets and why they’re so hated.  The sad reality of the financial markets is that all financial assets are always held by someone. By definition, we can’t all participate in bull markets because some of us hold cash, bonds or other financial assets. So, when a great big stock bull market is going on the rest of us who don’t own those issued securities, feel stupid. Our neighbors are getting rich while we sit around like dopes owning zero interest earning cash or bonds that are barely holding their head above the inflation line.

This opportunity cost and unrealistic benchmarking pursuit is not only what drives bull markets, but it’s also what makes people hate bull markets. And it will always persist since, by definition, we can’t all own the securities issued that will most benefit from the bull market….

2 – Let’s Talk About Unrealistic Political Pandering.  Here’s Bernie Sanders getting busted being unable to explain how he would break up the big banks. This has been a centerpiece of his campaign, however, he doesn’t seem to have thought it through very well.  I’ve described the big banks like a scrambled egg. As irritating as “Too Big To Fail” might be, there’s absolutely no way to unscramble the egg at this point. If we’re going to have for-profit banking then you really have to accept the reality that modern banking has become incredibly complex and interlinked because our economy has become incredibly complex and interlinked.  There is no putting the yolk back in that egg.  Bernie doesn’t have a realistic plan for it because there isn’t a good plan for it.

The irritating thing about this topic is that it’s just rhetoric playing to people’s misunderstanding of the economy. Breaking up the big banks sounds like a great idea in theory, but there’s no realistic way to make banking look like the 3-6-3 model again because that model doesn’t reflect the complexity of the modern US economy. Yes, we can reduce systemic risk from banks and I am all in favor of that, however, Bernie’s rhetoric about Wall Street is largely just pandering. It reminds me of Trump’s silly wall.  So, you’re gonna build a wall that doesn’t even solve the actual immigration problem?  Why?  Oh, because it’s a nice visual that gets uninformed people to think you have serious proposals even though those proposals won’t fix the problem you’re discussing….It’s just silly talk and we shouldn’t take it seriously because the policymaker discussing these kinds of ideas hasn’t actually thought through the reality of implementing the idea.  They are, quite literally, selling you a fiction in exchange for your vote.

3 – When Micro Thinking Threatens a Macro Goal.  The Golden State Warriors lost their 9th game last night.  To the lowly Minnesota Timberwolves. At home. In case you haven’t been paying attention, the Warriors are in pursuit of the single season 72 win record held by the ’96 Bulls.  You know, the team that had that guy Jordan.  With 4 games left to play they have to run the table to break the record. And they play some mighty good teams along the way.

But in their pursuit of this (meaningless) record they seem to have forgotten the real goal – winning the Championship. Yes, it’s nice to set records along the way, but you don’t play a long season to set regular season records. You play a long regular season to prepare yourself for the games that really matter – the playoffs.  The regular season is a microcosm of a much longer season that really starts with the playoffs.

This pursuit of 72 wins reminds me a bit of the 2007 New England Patriots where hubris got in the way of the real goal. In their pursuit of a perfect season the Patriots didn’t take their foot off the gas for even one minute. And that’s a lot of strain to put on a professional athlete engaged in such a long and rigorous season.  I wonder if the same thing isn’t happening to the Warriors. Is their pursuit of a micro goal getting in the way of the macro goal?  It sure looks that way now….