Jeffrey Pavlik
June 28, 2016
Jeffrey Pavlik @ Pavlik Capital Management LLC
Managing member Pavlik Capital Management LLC

“If at first you don’t succeed…give up.” - Homer Simpson. May, 2016 - Commentary

For years we have written not in a half-empty sort of way or with a bias towards pessimism (at least we don’t think so) but with a concerted effort to remind everyone that uncertainty is a fact of life. That said, there are but two things we are certain of 1) there isn’t a day that goes by that we don’t recognize how fortunate we are to have the trust of our investors over many years and 2) our absolute confidence in knowing things are uncertain. The late great comedienne Gilda Radner once said, “I wanted a perfect ending. Now I've learned, the hard way, that some poems don't rhyme, and some stories don't have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what's going to happen next. Delicious ambiguity.” We couldn’t agree more.

The interesting thing to us is how Gilda Radner embraced and understood uncertainty while our politicians, CNBC “experts” and central bankers seem to remain shockingly confused at how “uncertainty” creeps into everyday life. For the central bankers “uncertainty” reigns as to why low growth and supposedly low inflation after nearly eight years of zero rates still hasn’t worked and for the CNBC “experts” and most politicians, head-scratching “ambiguity” as to how Trump gets a Presidential nomination and the UK leaves the EU.

Let’s touch on our favorite central bankers first even though they are inexorably tied to our short-term focused politicians. Prior to Brexit last Thursday the world was still primarily focused on central banks. Our Fed Chairwoman Janet Yellen was on the hill and had just come off a Fed meeting that to some inexplicably put another rate rise off until late 2016…if ever. As well, her increase in the use of “uncertain” and “uncertainty” in her responses to questions and prepared speeches turned quite discomforting to us. As example, she stated she was “hopeful” for growth due to “uncertainty” about her forecasts?!?!? Holy lack of confidence and control! In essence, we believe she was (and maybe accidentally) finally conceding to the counter-factual that eight years of zero rates and money printing may not be the panacea for our economic ills. “These three little sentences that will get you through life: 1) Cover for me. 2) Oh, good idea, Boss! 3) It was like that when I got here” – Homer Simpson.   We have stated for quite a while that when the confidence game of central banker intervention failed to elicit the desired results things would get dicey.   This has taken much longer than we thought but we also underestimated the levels of delusion by the bankers. “When all else fails, you always have delusion.” - Conan O’Brien.  As such it appears once again the bankers are behind the curve economically.

Couple economic “uncertainty” with a comical Presidential nomination process and it is quite clear something is going on out there. While we’ll leave the political blame games to FOX and MSNBC we know one thing for sure, our central bankers have played a major part in our awesome candidates for President.  As most of the globe looks up to the US for guidance and certainty it is quickly becoming clear guidance and certainty are clearly tough to find. “Just because I don’t care doesn’t mean I don’t understand.” - Homer Simpson.  

So what’s left? Clearly we all know populations can’t vote on the central banks or their policies but post-Sanders, Trump and Brexit it is abundantly clear they can and will vote. Consider this, if wages were rising, rates were positive and growth booming do you think the UK would have voted to leave? Or Sanders and Trump would have been more than a punch-line for a few weeks? Yet day after day more fuel is added to the fire for voters and investors as the Bank of Japan, the ECB and the PBOC keep printing money and lowering rates while our Fed also backs off on raising rates despite 4.7% unemployment and near target inflation levels. Ponder this…if a global referendum for 2% interest rates was proposed vs 0% or negative interest rates until 2017 do you think it would pass? Absolutely! An indictment to the counter-factual to negative rates is emerging; through the ballot box. The general population is voting and time is running out on policies that benefit only those holding equities, real estate and bonds. “If at first you don’t succeed…give up.” - Homer Simpson.

Central bankers and politicians have, in our eyes, become bad day traders….and the voting public have become their risk managers and bosses. The populations now care, understand and are upending the over-confidence of central bankers and complacency of politicians. We mentioned last month how pre-2008 volatility was primarily driven by geopolitical events as opposed to post-2008 volatility by central bankers. That has clearly changed and some major political “uncertainties” have arisen.  Stay hedged.


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