“First, if the bubble were to collapse on its own, would the effect on the economy be exceedingly large?
Second, is it unlikely that the Fed could mitigate the consequences?
Third, is monetary policy the best tool to use to deflate a house-price bubble?

My answers to these questions in the shortest possible form are, ‘no,’ ‘no,’ and ‘no.’”

– Janet Yellen, September 27, 2005
(quoted in Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America,
by Danielle DiMartino Booth (Portfolio Penguin 2017)).http://amzn.to/2nltU4T

We touched down late last night in Salt Lake City.  Susan, the boys, Brianna and me along with a dozen bags.  It’s a long-standing family tradition and let’s just say everyone is really excited.  A snowstorm just ended and my Snowbird app says 11” of fresh new snow.

There’s an old saying on the ski mountain, “there are no friends on a powder day.”  Any skier who has felt that high-speed soft feeling knows… it’s the epic natural high and it won’t last long.  My good friend, today is a powder day!  I’ve got to beat the locals and catch the first tram.

This week’s post is selfishly short.  “No friends,” I’ll ask forgiveness later.  But I do want to share something I believe is important as it relates to the economy, the markets and your net worth.

Bridgewater Associates is out with a piece this week entitled, “Populism: The Phenomenon.”  It begins:

Populism is not well understood because, over the past several decades, it has been infrequent in emerging countries (e.g., Chávez’s Venezuela, Duterte’s Philippines, etc.) and virtually nonexistent in developed countries. It is one of those phenomena that comes along in a big way about once a lifetime—like pandemics, depressions, or wars. The last time that it existed as a major force in the world was in the 1930s, when most countries became populist. Over the last year, it has again emerged as a major force.

To help get a sense of how the level of populist support today compares to populism in the past, we created an index of the share of votes received by populist/anti-establishment parties or candidates in national elections, for all the major developed countries (covering the US, UK, Japan, Germany, France, Italy, and Spain) all the way back to 1900, weighting the countries by their population shares. We sought to identify parties/candidates who made attacking the political/corporate establishment their key political cause. Obviously, the exercise is inherently rough, so don’t squint too much at particular wiggles. But the broad trends are clear. Populism has surged in recent years and is currently at its highest level since the late 1930s (though the ideology of the populists today is much less extreme compared to the 1930s).

I share highlights from Bridgewater’s piece with you below along with the link to the full paper.  First, let me get started with this next chart and note the parallels between the mid-1930s and today.

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Source: Bridgewater Associates, LP

I appeared on Fox Business News’ “Countdown to the Closing Bell with Liz Claman” on Monday.  Ashley Webster filled in for Liz Claman.  Ashley pointed to Amazon and Google and the great moves they’ve had – a recent proof statement that all is well.  We humans are herd beings.  I answered… if you do nothing else, put a 200-day moving average stop-loss on everything you own.  Here’s the clip:

The Trump rally has been amazing.  The equity market trend remains bullish.  I’m pleased.  Risk remains elevated as we sit at the second most expensively priced market in history and the Fed is raising, not lowering, interest rates.  I’m cautious.

Take a careful look at the similarities Ray Dalio and his Bridgewater team draw between the 1930s (the last time we sat at the peak of a long-term debt cycle) and today.  The issue is debt.  We’ll find a way to the other side.  Deleveraging will happen.  Beautiful or ugly?  We just don’t yet know what we are going to get.

As a quick aside, I read about half of Danielle DiMartino Booth’s book, Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America, on the plane ride to Salt Lake City last night.  It is a behind the curtain view of the culture at the Fed.  Danielle was a senior analyst for former Dallas Fed President Richard Fisher.  The book is great.  Buy it… and if you are holding out hope that the Fed will save the day, DON’T.  They’ve got issues, we’ve got issues.

The intro quote is from Danielle’s book.  Mindful the Fed is not omniscient.

Sobering, but think of the opportunities.  Grab that coffee and find your favorite chair.  Today’s post is short.  Wishing you the best!

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Included in this week’s On My Radar:

  • “Populism: The Phenomenon” by Bridgewater Associates
  • Trade Signals – Extreme Investor Optimism Yet Bull Equity Trend Remains in Place (posted 03-15-2017)
  • Personal Note – Snowbird

“Populism: The Phenomenon”

By Ray Dalio, Steven Kryger, Jason Rogers and Gardner Davis

 

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We respect your email privacy

Populism is not well understood because, over the past several decades, it has been infrequent in emerging countries (e.g., Chávez’s Venezuela, Duterte’s Philippines, etc.) and virtually nonexistent in developed countries. It is one of those phenomena that comes along in a big way about once a lifetime—like pandemics, depressions, or wars. The last time that it existed as a major force in the world was in the 1930s, when most countries became populist. Over the last year, it has again emerged as a major force.

To help get a sense of how the level of populist support today compares to populism in the past, we created an index of the share of votes received by populist/anti-establishment parties or candidates in national elections, for all the major developed countries (covering the US, UK, Japan, Germany, France, Italy, and Spain) all the way back to 1900, weighting the countries by their population shares. We sought to identify parties/candidates who made attacking the political/corporate establishment their key political cause. Obviously, the exercise is inherently rough, so don’t squint too much at particular wiggles. But the broad trends are clear. Populism has surged in recent years and is currently at its highest level since the late 1930s (though the ideology of the populists today is much less extreme compared to the 1930s).

0324.01

Given the extent of it now, over the next year populism will certainly play a greater role in shaping economic policies. In fact, we believe that populism’s role in shaping economic conditions will probably be more powerful than classic monetary and fiscal policies (as well as a big influence on fiscal policies). It will also be important in driving international relations. Exactly how important we can’t yet say. We will learn a lot more over the next year or so as those populists now in office will signal how classically populist they will be and a number of elections will determine how many more populists enter office.

In any case, we think

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