There was an interesting Op-Ed by Minyan Malcolm on Minyanville today called Never Bet Against The House.

Thanks to Prof. Sedacca for his piece yesterday on bailouts and moral hazards.

As a result of my values and life experiences, I chose conservative personal finances. Due to my preference for security and prudence, I forgo the opportunity for larger gains and windfalls in exchange for the lower risk and security. It used to be that I could live with this trade-off. However, the last decade (and last few years in particular) have made this choice increasingly difficult. Not only have risky investments been deliberately supported by government policy, but less risky paths have been infected by overspill from the risk-taking activities; worse yet, my very own government is treating me as a sucker. I mean openly, which is kind of new.

The increasing role of federal intervention in stimulating certain segments of the economy and bailing out risk-takers has made it increasingly clear that the choice to be a conservative investor was not only foolish, but is being deliberately singled out for punishment by our own government. The flogging of the prudent investor has moved from sublime to ridiculous, as government officials blatantly enter a mode of panicked bailout of preferred gamblers and spreading misinformation about the situation.

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Dramatic? Perhaps. But I would argue that we are witnessing a very dramatic episode in US economic history. The “end of consequences” and the era of overt elite market socialism? I don’t know yet what I will tell my kids. Something along the lines of: go ahead and be reckless; someone will save your butt – so long as that butt is aligned with the chosen elite butts.

“Never bet against the house”. I get that now.

Thanks,
Minyan Malcolm

Mr. Practical chimed in with …

Dear Malcolm,

I understand your frustration. I would ask you though to take a step back and lengthen your time horizon. So far you are wrong and look like a dupe. But tell your children the lessons you wish to teach them and then step back and watch.

Over time reality will manifest and those who have been prudent with manageable debt will by far be better off. Pavlov’s dogs don’t think, they react. You are a thinker and your children will eventually see that.

Mr. Practical

My Reply:

Malcolm,

The past two years have not been great for risk takers in anything related to housing. What made the housing peak in summer of 2005 was a panic move to get in by folks then on the sidelines feeling like they were suckers for sitting it out. Everyone became convinced that housing was a one way ticket to the stars. Housing would never go down. Once the crowd is convinced that nothing matters, something always happens that does matter.

Now the same sentiment may be playing out in stocks. By the time everyone realizes it’s not prudent to be prudent, it’s time once again to be prudent.

Besides, take a good look at the chart professor Depew posted earlier today. Based on Fed actions alone, the biggest declines came when everyone was singing the same tune “Don’t Fight The Fed”.

Mish

Don’t Fight The Fed

One look at the above chart should be enough to convince anyone just how poor in practice one of the most touted mantras of all times is.

Mike “Mish” Shedlock
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