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7/23/2019 Business Perspective News

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The House Always Wins or Does It?

Central Banks are printing money like chips that they’ll never have to

redeem

Tired of reading about the Kardashians? Sick of egocentric politicians? Disgusted with endless war in the Middle East? Getting bored reading these monthly Outlooks?

not that bored or you wouldn!t be reading this"# $ere!s some %breaking news& that '

find really interesting and ' hope you will too# 't!s a recent summary of some things

that scientists ha(e disco(ered o(er the last few decades# )repare to be ama*ed#

1. +elocity and gra(ity can make time stand still , relati(ely- that is# Einstein!s

concept of %spacetime& proposes that the gra(itational pull at the center of a black

hole free*es the stopwatch of time# 'f you could li(e there- billions of years in the

uni(erse could pass- and you would not ha(e aged one second# Similarly- time stops if

an ob.ect tra(els at the speed of light# E(en by tra(eling at /01 miles an hour in an

airplane- your %time& relati(e to a stationary friend on Earth would pass more slowly

than hers# To be %relati(ely& immortal- forget about cryogenics , .ust go fast- or li(e

in a dark hole#

2. The uni(erse has trillions of identical but separate twins# Two different %particles&

separated by light years in space , one at one end of the uni(erse- the other at the

opposite- can influence each other# 'f one turns %right&- the other one will turn %left&

and at e2actly the same time# 3uantumly spooky4



3. Scientists ha(e shown that %particles& can suddenly appear out of nothing , e(en

a (acuum , and then disappear again into nothingness# 't seems strange that you

could get something from nothing- but that there once was nothing 50 billion years

ago- and now there is a uni(erse- is e(ident proof that you can# One theory behind the

creation of our uni(erse is that a small %particle& showed up completely from a %(oid&and then %e2panded& e2ponentially into the uni(erse we know today# 6ig 6ang? 7es ,

most know this , but the %singularity& from nothing? Mind blowing#

4. Something can either be here or not here- depending on whether you!re looking#

8emember the old twister about %if a tree falls in the forest and no one hears it- does

it make a sound?& Science says %no&# Obser(ation matters# This is the pu**le of

%Schr9dinger!s :at&# $idden in a bo2- this ;uantum %cat& can be ali(e or dead

depending on whether you look inside# 6e careful then- about how you treat your

own Tabby# :heck on it often to make sure it!ll be there tomorrow#

5. :arbon and all the hea(ier elements of which we are composed a little gold by the

way" were manufactured or cooked by Superno(a stars at tremendous heat# Those

stars e(entually e2ploded and the elements somehow coalesced into other stars and

planets- e(entually to make us# So we are %golden , we are stardust& , :rosby- Stills

and <ash were right# =nd by the way- you and ' are composed of some of the

identical atoms as Genghis Khan and :olumbus were# <ot El(is though# <ature

hasn!t had enough time yet to spread him around#

6. Dark Matter , So >@ of the uni(erse is made up of dark matter , matter that

supposedly doesn!t emit or reflect light# This one!s mysterious to me but '!m going

with it because scientists seem certain the uni(erse couldn!t stay together unless it

was there# =nd God said- %Aet there be dark matter4& $a(e to change a few (erses in

the 6ible- ' guess#

7. Global warming is a fact. <ah- ' won!t go there , they ha(en!t really pro(ed it-

now ha(e they? =fter all- if a cat can either be here or not here depending on whether

you!re looking- then global warming deniers .ust need to a(oid looking for the signs-

and it won!t e2ist# See , science is on their side after all#

Some of this isn!t actually breaking news- but then for Bo2 and :<<- e(erything is#

So '!m .ust following their e2ample# 'f you!re incredulous or .ust mad by now- go back

to the Kardashians# :aitlyn has a new wardrobe she is .ust dying to show off- and the

war in the Middle East will still be going on#

More breaking news , this time on the in(estment sideC central banks are casinos#They print money as if they were manufacturing endless numbers of chips that they!ll



ne(er ha(e to redeem# =ctually a casino is an apt description for today!s global

monetary policy# There is a wellknown %foolproof& system in gambling circles that is

sophisticatedly called the %Martingale&# ' used to call it %double up to catch up& at my

fraternity!s poker table where ' was consistently frustrated loser" , not because '

used Martingale but because ' wasn!t a good bluffer# Today!s central bankers use both tactics to their success , at least for now# They bluff or at least con(ince

in(estors that they will keep interest rates low for e2tended periods of time and if

that fails- they use 3uantitati(e Easing with a Martingale fla(or#

Martingale theori*es that if you lose one bet- you .ust double the ne2t one to get back

to e(en- but if you lose that one you do it again and again until you win# Gi(en an

endless pool of %chips&- the theory is nearly mathematically certain to succeed- and in

today!s global monetary system- central bankers are doing .ust that# apan for years

has doubled down on its 3E and Mario Draghi!s statement of se(eral years past-%Fhate(er it takes& , is a Martingale promise in disguise# 't (ows to get the

Euroland economy back to %e(en& and inflation up to > by increasing 3E and the

collateral it buys until the Euro currency declines- the economy impro(es- and

inflation approaches target# :urrently the E:6 buys nearly H00 billion a month- and

this Thursday they will up the ante , Martingale or bust4

$ow long can this keep going on? Fell- theoretically as long as there are financial

assets including stocks" to buy# )ractically the limit is really the (alue of the central

bank!s base currency# 'f in(estors lose faith in a reasonable range for a country!scurrency- then inflation will ;uickly hit targets and then some# +ene*uela- =rgentina-

and Iimbabwe are modern day e2amples# Germany!s Feimar 8epublic is a great

historical one# Theoretically- if the whole de(eloped global economy did this at the

same relati(e pace and stopped at the right time- they could successfully reflate and

produce a little bit of inflation and a little bit of growth and sa(e the globe from the

dreaded throes of deflation# That is what they are trying to do , 3uantitati(e Easing-

Martingale style , and so far- so good- ' guess , although no rational obser(er would

call these postAehman efforts a success#

That they ha(en!t really succeeded is a testament to what ' and others ha(e theori*ed

for some time# Martingale 3E!s and resultant artificially low interest rates carry

distincti(e white blood cells- not o2ygenated red ones- as they wind their way through

the economy!s corpusC they keep ali(e *ombie corporations that are unproducti(eJ

they destroy business models such as insurance companies and pension funds

because yields are too low to pay promised benefitsJ they turn sa(ers into financial

eunuchs- unable to reproduce and grow their retirement funds to maintain e2pected

future lifestyles# More sophisticated economists such as Kenneth 8ogoff and :armen



8einhart label this %financial repression&# Euthanasia of the sa(er is the result if it

continues too long#

6ut this is theori*ing much like Schr9dinger!s cat# $ow many people care about the

e2istence of a ;uantum feline? = few but not many#" Market obser(ers say %show methe money& and when they look inside the bo2- they want to see some- so let!s get

down to business#

$ow does all this play out? Timing is the key because as gamblers know there isn!t an

endless stream of Martingale chips , e(en for central bankers acting in unison# One

day the negati(e feedback loop on the real economy will halt the ascent of stock and

bond prices and in(estors will look around like File E# :oyote wondering how far is

down# 6ut when? Fhen does Martingale meet its ine(itable fate? ' really don!t knowJ

'!m .ust certain it will# Doesn!t help you much- does it# E2cept to argue that much liketime is relati(e to the speed of light- the faster and faster central bankers press the

monetary button- the greater and greater the relati(e risk of owning financial assets# '

would gradually derisk portfolios as we mo(e into >15# Aess credit risk- reduced

e;uity e2posure- placing more emphasis on the return of your money than a double

digit return on your money# E(en Martingale casinos e(entually fail# They may not

run out of chips but like =tlantic :ity- the gamblers e(entually go home- and their

doors close#

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