Notes to my son

We are going to have a new addition to the family and hopefully a new reader to this blog. I really, really liked the google ad where the dad catalogs and writes emails to his daughter through the years via all the google applications. I wanted to do something similar for my son. Here is the first in a regular series of blog posts called “notes to my son”. Hopefully he reads them someday and gets something out of it. Hopefully y’all get some thing out of it too. Comment on the posts, so that he gets to see all sides of the argument :).

Hey Son,
Welcome. Dad here, hope all is well. I hope you are enjoying your stay inside the womb. We would really like it if you stay in there a little longer. Its good for you

I am going to write to you regularly, mostly about investing, economics and everything that relates to the two. I may ramble on a little bit about politics and will try my darndest to convince you to be a liberal democrat :). It may upset your mother a little bit, but hey I gotta put forth my case.

So, what sort of world are you stepping into? If you believe whats on TV, well, you are fucked. American debt is too high, global warming and terrorists are going to kill us all and immigrants are going to take away all our jobs. Don’t believe a word of that crap. Remember this single fact – humans have an inbuilt tendency to survive and progress, that’s what this is all about. Throughout history humans have concurred adversity after adversity and progressed. A 100 years ago the average life expectancy was 31. Today its 67. By the time you reach my age, you can expect to live much much longer. Keep an open mind and embrace technology to the fullest, learn to create it, learn to use it, learn to move forward with it.

Its gonna be all right.

The whole America is too much is debt is a dodge too. This is the funny thing about sovereign debt that seems to elude everybody. Its denominated in a currency (the dollar in this case) which the sovereign state (in this case the US Government) has unlimited capacity to produce. Yeah you can argue that all this “printing” money is going to lead to higher inflation and even hyper inflation, but with benny apparently printing money for the past 3 years and CPI inflation at ~2-3%, you gotta ask WHERE IS THE INFLATION? A few years before you were born, we kinda popped a HUGE bubble and suffered a big big financial crisis aka the GFC (Great Financial Crisis). Post GFC, the world is starved for safe assets. People are more worried about the “return of” their assets than the “return on” assets. What safer assets than sovereign debt? In this floating FX world, the sovereign has unlimited capacity to satisfy their obligations. With that context, think about this –  the EU is in deep do do, China’s economy and institutions are so opaque that there is no way that the world is going to go and start buying Chinese debt (they don’t float today anyway). In these troubled times, if you want an ultra safe asset which is sovereign debt who are you gonna trust the most other than the US? In that case, when everybody now wants to buy your debt, because you are the only viable safe kid on the block, why wouldn’t you sell more of it? Doesn’t that make business sense? So don’t worry too much about this, this whole debt thing is just a diversion by politicians who want you to be scared and vote a certain way.

Its gonna be all right.

We have this institution called the Fed. Its a bank of banks. These guys saved our hides in the GFC. Did they make mistakes, yes. Did they not seize the moment and reform the system, yes. Did they screw up badly, maybe. But looking in the rear view mirror, boy did they did save our hides. Increasingly for the foreseeable future it looks like this institution is single handedly going to dominate investment returns. When you analyze your investments (which I hope in the future you will) , you will have to pay attention to what this institution is doing. You might take a view/position against what the fed is currently doing and you might be intellectually and completely right, but they have way more firepower than you ever will have. Don’t fight the Fed.

Oh, always listen to your mother and It will be all right.

On Today January 16 2013

Important Numbers

Attribute Value
S&P 500 1472.63
10 Yr T-note yield 1.88%
30 Yr T-note yield 3.08%
Yield Curve Upward Sloping
TIPS inflation expectations 2.51%
Cleavland Fed Inflation Expectations 1.48%
Unemployment Rate 7.8%
#1 Trending on Twitter #HarmonizersAreEpic

Talk to you soon,


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