Leithner Letter Nos. 192-195
26 November 2015 - 26 February 2016

We're delaying a normalization of rates way, way beyond what is prudent. We have a monetary policy that's now in place that was adopted for the crisis conditions of 2008 and 2009. This [northern] summer we're going to be getting the seventh year of this recovery. It's been a lousy recovery, but it's still the seventh year of a recovery. That is totally inappropriate. … When I went to school, you [would have been] laughed out of the classroom if you [had] said [that] the right interest rate when the unemployment rate was [5.4%] was zero – it was just the most preposterous thing you could imagine. Or that the Fed should have quintupled its  balance sheet in five years.

We're at the point of absurdity. … At some point what is going to happen – and this gets to my eight or nine cataclysmic number [on a scale of 1 to 10] – is that we're going to get a series of bad numbers … and the market is suddenly going to say, “Oh my God, they are so far behind the curve that they will never catch up.” And the market is going to force an adjustment on the Fed that will be wrenching. That's the cataclysmic outcome. … When I talk to my clients, the Fed has almost no credibility when it comes to a sense that they will be able to stay on top of this ticking monetary bomb.

Lawrence B. Lindsey
Fiscal Summit, The Peterson Institute for International Economics
(18 May 2015)

The Power of Stoic Thinking:
Why Investors Welcome Panics, Crises and Bear Markets

What mindset underlies successful investment? How does an investor worthy of the name respond to sudden and sharp falls, as well as extended contractions, of individual stocks’ prices and overall markets’ levels? I ask these questions in order to make a vital point: investment – and particularly successful investment – is primarily a matter of character and only secondarily of cleverness. In his Preface to The Intelligent Investor, Warren Buffett wrote:

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline.

Benjamin Graham elaborated this point: an investor’s results presuppose a particular temperament. Graham recalled William Shakespeare’s Julius Caesar:

The investor’s chief problem – and even his worst enemy – is likely to be himself. (“The fault, dear investor, is not in our stars – and not in our stocks – but in ourselves” …) [Hence] by arguments, examples and exhortation … we hope to aid our readers to establish the proper mental and emotional attitudes toward their investment decisions. We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they lacked an extensive knowledge of finance, accounting, and stock-market lore (The Intelligent Investor, p. 8; see also pp. 120-121).

To read Part I of the full Newsletter (PDF), click here; to read Part II, click here.

Chris Leithner


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