Notable Quotable

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“One of the most important warnings offered by firefighters is simple: get out early. In the face of wildfires, some homeowners get the idea of staying in their homes and riding it out. As one firefighter warned, ‘The point is to go.’ But if you don’t, it’s better to stay than to panic and run in the midst of a firestorm of smoke and embers. It’s not the fire that gets you. It’s the heat. Even before the flames reach the house, it can be fatal to stand outside trying to protect what you have (h/t John Galvin). Similarly, our ‘Exit Rule for Bubbles’ is straightforward: You only get out if you panic before everyone else does. You have to decide whether to look like an idiot before the crash, or look like an idiot after it.”

John Hussman
Hussman Funds

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Notable Quotable

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“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

Ernest Hemingway
 Notes on the Next War: A Serious Topical Letter 
Esquire magazine
September 1935

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Notable Quotable

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“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”

John Maynard Keynes
1946

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Notable Quotable

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“The cities were still there, the houses not yet bombed and in ruins, but the victims were millions of people. They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.”

Pearl S. Buck
Novelist who was in Germany during the hyperinflation in 1923

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Notable Quotable

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“My studies of the 17 major financial crises since the founding of the Republic reveal that over-optimism is an important driver of the bubbles that eventually become busts. As the legendary investor, Sir John Templeton, once said, ‘The four most dangerous words in investing are ‘This time is different.’ Such was the mind-set that real estate prices could only rise (2008), dot-com companies would forever grow and be profitable (2001), or that the Russian government would never default (1998). “

Robert F. Bruner
The Hill

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Notable Quotable

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“The population of the world is increasing at the rate of five thousand four hundred every hour. A small percentage of these people will become gold hoarders, people who are frightened of currencies, who like to bury some sovereigns in the garden or under the bed. Another percentage needs gold fillings for their teeth. Others need gold-rimmed spectacles, jewelry, engagement rings. All these new people will be taking tons of gold off the market every year. New industries need gold wire, gold plating, amalgams of gold. It is brilliant, malleable, ductile, almost unalterable and more dense than any of the common metals except platinum. There’s no end to its uses. But it has two defects. It isn’t hard enough. It wears out quickly, leaving itself on the linings of our pockets, and in the sweat of our skin. Every year, the world’s stock is invisibly reduced by friction. I said that gold has two defects…The other, and by far the major defect, is that it is the talisman of fear. Fear, Mr Bond, takes gold out of circulation and hoards it against the evil day. In a period of history when every tomorrow may be the evil day, it is fair enough to say that a fat proportion of the gold that is taken out of one corner of the Earth is at once buried again in another corner.”

Ian Fleming
Goldfinger

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Notable Quotable

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“I’ve been saying for years that central banks can never step away from this. They can threaten to. And they can bluff, and they can do some probing bets like they did last year, and the market may fall for that, or call that bluff in the short term. But yes I think we’re in a position now where central banks can never back away, which sort of begs the question how can this ever end. Can asset markets get inflated forever?”

Mark Spitznagel
Universa
Bloomberg interview

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Notable Quotable

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“There are certainly forms of instability that have been introduced by algorithmic trading that will increase as we put more and more faith in these algorithms. The February 2018 flash crash was instructive. The culprit was a slightly esoteric exchange-traded product that has a rebalancing mechanism inside of it. And that rebalancing mechanism ended up destroying the product on one specific day when the market moved a little bit more than the product was designed to handle. The product was required to trade a lot of instruments in response to that move. But then those trades exaggerated a small move and it became a big move, which required more rebalancing—and everything spiraled out of control.”

Anonymous algo-trader
LOGIC

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Notable Quotable

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“If you look at the history of currency, gold has a unique role and I don’t think it’s accidental. Some people say that if gold hadn’t been selected as a currency thousands of years ago, it would not have a role today. I don’t agree. Gold has a lot of useful properties and unique features so I don’t think its status is in any way accidental. It’s a monetary asset and I think if you replayed history another way, you would come out with gold again.”

Ken Rogoff
Harvard University

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“Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war. How should one position for such an endgame? As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value – an asset that cannot be printed.”

Rick Rieder
BlackRock Funds

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Notable Quotable

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“Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions. How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well-paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.”

Jeffrey Harding
Mises Institute

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Notable Quotable

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“I remember being told many years ago on a South African game reserve that the buffalo was the most dangerous of the big five game animals. In large part, this is because of the complacency shown towards them relative to the other, more obviously dangerous big five game animals (ie the lion, leopard, rhino and elephant). It’s also a fact that unlike the other big five, the buffalo gives no warning of an imminent charge (see link). It’s complacency that gets you killed, and the same goes for investors with the macro-risks. We all know what the big macro-imbalances are out there, caused by years of loose money, but investors continue to ignore them at their peril.”

Albert Edwards
Society Generale

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Notable Quotable

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“Why does the cycle move as it does? What causes these periodic alternations, this ebb and this flow, in the national priorities? If it is a genuine cycle, the explanation must be primarily internal. Each phase must flow out of the conditions – and contradictions – of the phase before and then itself prepare the way for the next recurrence. A true cycle is self-generating. It cannot be determined, short of catastrophe, by external events. Wars, depressions, inflations may heighten or complicate moods, but the cycle itself rolls on, self-contained, self-sufficient and autonomous. . .The roots of cyclical self sufficiency lies deep in the natural life of humanity. There is a cyclical pattern in organic nature — in the tides, in the seasons, in night and day, in the systole and diastole of the human heart.”

Arthur M. Schlesinger, Jr.
The Cycles of American History

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Notable Quotable

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“John Locke, the British philosopher whose ideas fuelled the American Revolution, had a theory of knowledge and perception, which I always found annoying. Asked if we have an idea of the substance behind our perceptions, he said we had ‘no such clear idea at all, and therefore signify nothing by the word substance but only an uncertain supposition of we know not what’. The philosophical debate has moved on in the centuries since Locke wrote. But his idea captures well the uneasy state of the world’s financial markets. They are driven in the short run by perceptions, not reality. If many have the wrong impression, markets will move on that. But in the long run, markets move on matters of substance. And at present the economic substance is a ‘something we know not what.'”

John Authers
Bloomberg

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Notable Quotable

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“A lot of economic, market and bank supervisory theory is based on the premise that financial actors are largely rational. The crisis convinced me that they are not. It was not rational for very experienced financial leaders to make their companies hostage to short-term financing that was, in the final analysis, secured by the irrational assumption that house prices will always go up. It was not rational for Dick Fuld to reject offers because their terms offended his pride. It was not rational for money market fund investors to flee all money market funds just because one fund made a bad bet. It was not rational for some lenders, at the height of the crisis, to stop accepting even Treasuries as collateral. The crisis convinced me that greed, ego, fear, short-sightedness, group-think and other human foibles have at least as much, if not more, to do with financial behaviour as rational thinking does.”

Mike Silva
Former chief of staff to New York Fed president Tim Geithner during the 2008 financial crisis
(Speech to the LBMA, October 2018)

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Notable Quotable

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“We live in a technological golden age but in a monetary and fiscal dark age. While physicists discover the so-called God particle, governments print and borrow by the trillions. Science and technology may hurtle forward, but money and banking race backward.”

James Grant
Grant’s Interest Rate Observer

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Notable Quotable

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“Why own gold? Because it makes sense, within a properly diversified portfolio, to have portfolio insurance. If you own a home, it makes sense to have fire insurance. Your investments are no different. And gold is now back, more relevant than ever. Since the start of the millennium gold, as expressed across a wide variety of currencies, has generated average annualised returns of over 9%.”

Tim Price
Master Investor

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“Cash over the long run is the worst-performing asset class and therefore the riskiest asset class. So where do you go? To me, going to any one asset increases risk. So the best way to deal with the challenging environment I foresee is by diversifying well. . . [G]old is just an alternative currency to fiat paper currencies. If your portfolio is likely to perform poorly in the adverse environment I’ve been describing – less effective monetary policy, the need to run larger fiscal deficits and monetize them, and challenging politics – the behavior of gold as alternative cash has some diversifying merit.”

Ray Dalio
Bridgewater Associates

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“When you think of the color gold, images of grandeur and extravagance are likely to come to mind. For millennia, the metal has adorned crowns and hilts of swords. It has been used to enhance paintings and ornaments to increase their value. In some cultures, gold is a predominant feature of festivals and celebrations. In Eastern cultures, the metal is an integral part of auspicious occasions like marriages and festivals by way of gifts and sacred rituals. Gold also features heavily on the attires of brides and grooms throughout South Asia. Humans’ fascination with gold is as old as time itself. The scarce material has a certain appeal to it. Empires have flourished by possessing gold, wars have been fought to control regions harboring rich deposits of the metal and treasure hunters and explorers have spent a lifetime in search of it.”

Puja Bhattacharjee
Independent Journalist

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Notable Quotable

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“. . .[I]f you go down the line of currencies around the world, you don’t find many attractive opportunities. And that’s why I say if the world were to give up on dollars and give up on euros, they’d probably go back to the old standby, which is gold. And I don’t mean by gold, government run gold standard, like we had in the late 19th century. That’s politically impossible. Governments will never be willing to subordinate their policies to the constraints of a hard commodity ever again… So how could gold make a revival as a sort of international money? Well, we don’t actually need a government run gold standard anymore…since people have always had confidence in gold as a long-term store of value, there’s no reason why it couldn’t play that role.”

Benn Steil
Director of International Economics
Council on Foreign Relations

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