Cullen Roche: Pragmatic Capitalism

Warning – hard money types are going to lose their minds over this article. I apologize in advance.  It’s impossible to talk about interest rates without running into people who think the Fed has “manipulated” interest rates lower than they otherwise would be. As if the bond market has become nothing more than one huge completely manipulated Federal Reserve market. This is a really intuitively appealing argument and it’s not even completely wrong, but I want to add some important...

The term “fractional reserve banking” is commonly used in a confusing manner in both mainstream economics and within lay conversations about economics. I hope this article with clear up some of the common confusions.  Fractional reserve banking is the idea that banks take their reserves and lend them into some fraction based on the quantity of reserves they hold. This idea has been largely debunked since the financial crisis. In reality, banks do not lend their reserves, except to one...

The Washington Post reports that some 401K providers are considering cryptocurrencies in their portfolios. The idea that alternative assets should be more widely available has become a more and more common refrain due to the fact that many of the best performing asset classes in the last 10 years are crypto and venture capital, two asset classes that are closed off to most traditional investment accounts like 401Ks and IRAs. Should this change? Let’s explore. For the purposes of this...

Here are some things I think I am thinking about: 1) “Transitory” inflation….Contrary to popular opinion, I am not the Director of Communications at the Federal Reserve. I don’t even work for the Federal Reserve. I’m just a lowly asset manager who happens to oversee a big chunk of fixed income so I worry incessantly about inflation and interest rates. That led me to obsess about how the Fed actually works and so here I am constantly writing about how the Fed works and how they think about...

Here are some things I think I am thinking about: 1) Moar Bitcoin!  Back when I was a young adventurous person I used to have an exciting portfolio filled with interesting individual stock bets. But then I learned a bunch of economics/finance, got old/fat and turned into a pretty boring indexer. So I just love it when other people make wildly insane bets that I can write blog posts about. And I think that’s why I love the MicroStrategy story so much. In case you haven’t been following...

Here are some things I think I am thinking about: 1) Markets are crazy, part 2,343,325. I like to say that markets don’t really “cycle” like a sine wave. They tend to trend up and to the right with temporary shocks along the way. Whatever causes the shock (up or down) will always be different. But the responses are more or less the same. That is, people get greedy, then they get really greedy, then they get fearful and then they get really fearful. Timing all of this is damn near...

You’ve probably seen some version of the following meme in the last few years. In case you haven’t it’s generally used to infer that Jerome Powell is printing money and hyperinflation is coming. I love a good meme and few things make me happier than hilarious nonsense on the internet. So I feel bad debunking this meme because it’s kind of funny and memes are mostly harmless, but this is one of those memes used by people who want you to believe something that isn’t right. Anyhow let’s get...

Here are some things I think I am thinking about. 1) So. Much. Crypto.  I am about to write a post entirely about crypto. But before I do that I want to make it clear that this space gets WAY too much attention. I mean, we’re talking about an asset class that is incredibly small relative to the scope of the global financial asset portfolio. At just 1% of global financial assets the entire crypto space is about the size of Amazon. Amazingly though, the crypto space dominates the airwaves....

Whooboy. What a CPI print. Here are some highlights in case you have a life and don’t drool over BLS reports: The all items index experienced its largest increase (4.2%) since Sept 2008. The used car index was up 10% in April, its largest increase since 1953. The core index (ex food and energy) was up 0.9% in April, its largest increase since April 1982. Fun. There will be a tendency in many circles to assume that this is the return of the 1970s or something like that. I think we need to...

Here are some things I think I am thinking about. 1. Is the Fed “Playing with Fire”?  Stan Druckenmiller had an op-ed in the WSJ about how Fed policy has been too loose for too long. I think there are some reasonable perspectives here. I’ve been pretty vocal about the risk of inflation overshooting the Fed’s target this year. I also think there’s an increasingly convincing argument that the Fed’s policies have contributed to a lot of financial market craziness in the last year. It would...