larry summers S&P 500

Larry Summers Worries You Are A Rank Amateur Investor Who ‘Has Seen Nothing But Up’

"I worry that there’s going to be a kind of band-wagoning."

Larry Summers is on the tape on Saturday and his comments (from the Institute of International Finance event in Washington) are worth noting.

Sure, you probably harbor a healthy skepticism towards Larry and that’s fine because after all, Larry is Larry and all that comes with him. But as I am fond of reminding market participants, there’s still some utility in considering what the ostensibly “smart” people have to say.

Between the financial crisis and, more recently, the war on truth and experts (led by Steve Bannon and Nassim Taleb, respectively), we’re living in a world where stupid people have become convinced that because news is spun and because experts very often say and do dumb stuff, there are no longer things called “facts” and there are no longer people who are “smart.”


Clearly, that’s dangerous and it also makes no sense to the extent that nothing has actually changed. The news has always been spun and smart people, by virtue of being human, have always said and done dumb things. So the news is no more “fake” now than it was before Steve Bannon and experts are no less experts today than they were before Nassim Taleb starting writing bestsellers.

Similarly, retail investors with their E*Trade accounts are no more gurus in the post-crisis world than they were prior to 2009, and the amusing nexus in all of this is that the very same average Joes who are buying into the whole Bannon/Taleb post-truth, post-expert narrative are completely oblivious to the fact that the reason their E*Trade accounts look like they do is precisely because the smart people and the experts have willed it.

Finally, when you hear bloggers and random people on Twitter making fun of Larry for something other than all of the myriad things which you can very fairly make fun of him for (and there’s no shortage of those), you might consider that no one asked those bloggers and tweeters for their opinion on economics. Now, those bloggers and tweeters will contend that the reason why no one asked for their opinion is because they are purveyors of inconvenient yet incontrovertible economic truths in a world populated by idiots whose policies have failed. Of course there’s another, far simpler explanation for why you don’t see those bloggers and tweeters on panel discussions or on TV: namely that those bloggers and tweeters don’t know what they’re talking about. Occam’s razor.

So with that as the backdrop, consider the following bullet point summary of Summers’ remarks via Bloomberg…

Former Treasury Secretary Larry Summers says markets are complacent, rejects rule-based monetary policy, and says Donald Trump’s tax framework is headed in the wrong direction.

  • “There’s an element of complacency, via self-denying prophecy, or to paraphrase FDR, an important thing we have to fear is the lack of fear itself” in markets
  • Calls markets “one of the confirming facts for the secular stagnation hypothesis”
  • In the absence of great investment opportunities, in era of high savings, makes sense that asset prices would be high — so secular stagnation predicts elevated asset prices, Summers says
  • “I worry that there’s going to be a kind of band-wagoning” and that there’s a growing number of people whose experience in market dates from 2008, so they haven’t seen anything but up, he says
  • “It would be a grave era to turn American monetary policy over to a three-variable feedback rule,” Summers says
  • “The idea of monetary policy is that it’s supposed to be reactive to conditions” to stabilize the economy
  • On Trump tax plan: “It’s a different level of bad than we’re accustomed to”
  • The Bush tax ideas were “honest” attempts to strengthen the economy, but “I am not able to say this about the current melange of ideas that is labeled as a tax plan”
  • “No credibility whatsoever” to the claims that it will pay for itself
  • “Yes to corporate tax reform, but no to this corporate tax reform”

5 comments on “Larry Summers Worries You Are A Rank Amateur Investor Who ‘Has Seen Nothing But Up’

  1. Irb says:

    Summers certainly hasn’t been alone in his dire warnings, which are with merit. But historically, markets don’t crash while many are publicly prognosticating that they will. Like since Icahn’s “Danger Ahead” production last year (before markets rose another 30% or so). Instead, the “danger” has been to sit in cash while while high inflation in the cost of living & healthcare has ravaged the purchasing power of savings. As financial repression continues to be the tool of choice among policymakers everywhere.

    • Jamal James says:

      Core PCE is at about 1.3% yoy, and 2 month treasuries are above 1%. It would take a long time for inflation to ravage someone sitting in cash.

      • Irb says:

        I said real inflation in the cost of living, not the government’s fake numbers.

        Shadowstats is somewhat better but even it, based on the older more accurate method of measuring inflation, is admitted to significantly understate the rise in the real cost of living.

        Exhibit A: Do you pay for your own food, utilities, rent, travel & entertainment, healthcare?

        Exhibit B: US dollar fell 17% in the first 8 months of this year, collapsing at an annualized rate of 25.5% per annum. Over -30% annualized using a better index like the FXCM. Yet, one believes government that inflation is just 1% annualized? How is that even possible with the currency falling 25-30% annualized?

        • Irb says:

          Also, dollar devaluation is the top driver of the US stock market this year. In reality, US stocks are falling in price but that fact is distorted by the collapsing dollar, giving the illusion of rising stock prices in dollar terms.

      • Irb says:

        Hey James, have you ever perused the Financial Repression Authority website? A lot of good, thought provoking insight there including items by some highly accredited people.

        One from Oct 4 by trader and former CME Director Yra Harris about Jerome Powell and his belief in the printing press (and more), which is timely due to how Powell has soared from nowhere to the top of the list on predictit for next Fed Chair. Read it and be afraid, very afraid.

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