The Digest #58

Published on January 20, 2021

Today marks the 59th Presidential Inauguration in the United States. The peaceful transition of power has taken place dozens of times in our history and it is always a test of our system of governance, especially when the political party in power must turn over the reins of government to the opposition. 

The inauguration comes just two weeks after a domestic attack on the United States Capitol so security for the event has been very high, and not just in the vicinity of the Capitol and White House. Streets and bridges have been closed to vehicles and pedestrians for several days and access to the national mall and the downtown core of Washington is severely restricted.

I was in the Washington area for the four previous inaugurations and security was never even close to this tight. Unfortunately, militarizing the downtown core and the monuments was the quickest way for the government to secure the area. In the future, one hopes that a balance can be struck between securing government buildings and providing citizens with access to their government.

Although a focus on current events is understandable, we should always strive to view what’s happening today through a historical lens as well. One of the reasons I like to read about history in general is that often we have been in the same place before, even though similar events may have taken place beyond our living memory. Biographies are particularly good at shedding light on the fact that human nature changes very slowly, if at all, and the same human frailties we see today existed hundreds of years ago.

I published a short article yesterday about the crazy election of 1800. It was a wild one — it had everything from slanderous personal attacks, anonymously written screeds in newspapers, claims that Adams was a monarchist, counter-claims that Jefferson was a radical who favored the lawlessness of the French Revolution — and the outcome was eventually decided by the House of Representatives in a contingent election that required 36 rounds of voting before Jefferson was declared the President-elect, with Aaron Burr winning the Vice Presidency.

Nothing about the election of 1800 normalizes what took place over the past three months, and obviously we live in a totally different world today. However, it is important to know that the past was imperfect as well, that human beings were capable of both rising to the occasion and falling short, and that the country somehow endured its first major test of a transfer of power.

Top Secret Trading Strategies

It is often said that no one rings a bell at the top of a market cycle. Those of us who were around during the dot com bubble remember how the mania kept going on and on long past the point where it seemed destined to collapse. 

One reliable marker of a bubble in financial markets is when it seems like everyone is making a fortune speculating. We may or may not be near the top of a market cycle, but speculative excess is everywhere. 

It’s so simple! Just buy stocks when they are going up and sell them when they stop going up!

It is easy to make fun of videos like this, and there are many more that are very similar. What we should not lose sight of is the fact that manias have real world consequences. If Chad and Jenny really believe that they can sustainably make $20,000 per month trading stocks, won’t they quit their jobs and increase their consumption? Will they ratchet up their lifestyle in ways that cannot be easily reversed? 

The Federal Reserve has made it clear that we should expect major intervention when financial markets decline. Few dispute the Fed’s traditional role of facilitating orderly markets during times of panic. However, interventions over the past year have gone far beyond restoring market function and have sent the message to investors, professional and amateur alike, that the Fed has their backs. It is hard to see how this ends well.

January Reading List

Surprisingly, my reading list for 2020 was a popular post and some readers have asked about my plans for 2021. I started out with ambitions to read Edward Gibbon’s The Decline and Fall of the Roman Empire, but after a couple hundred pages, I found that I was constantly pausing to refer to Wikipedia articles. My understanding of Roman history, particularly the Roman Republic, is so limited that I had trouble putting Gibbon’s words into the proper context. 

Gibbon wrote for an audience that was expected to have significant baseline knowledge of ancient history. As a writer in the 18th century, distribution of his books were limited to those who could afford the high cost. Invariably, this meant that readers would be members of the elite. Today, even well educated people with advanced degrees often lack the baseline understanding that Gibbon took for granted in his readers. This is certainly true for me.

I have not given up on Gibbon, but I felt that I had to put him aside for now in order to learn more about the Roman Republic in a format with a more contemporary style. For this purpose, Mary Beard’s SPQR: A History of Ancient Rome, has fit my purposes very well. I’ll finish this book shortly and then decide whether to read any additional contemporary accounts of Roman history before I return to Gibbon.

I have also continued reading Steinbeck from a compilation of novels that I came across by accident in November. East of Eden is a haunting tale of life in the Salinas Valley of California around the turn of the twentieth century. Although not autobiographical, Steinbeck does include some stories about his family which makes the novel more personal. 

Unfortunately, I see elements of the villainous characters in East of Eden as I observe the world today, nearly seventy years after Steinbeck published the novel. Human nature never really changes and the damage done by narcissistic sociopaths is as severe today as it ever was in the past.

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The Digest #58
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