Postcards: The Day My Life Got "Real"

Welcome to December 11. Don't drink or else you'll have a baby. Also, let's talk about the Fed meeting over the next two days, and why it's time to hedge...                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: The Day My Life Got "Real"]( Welcome to December 11. Don't drink or else you'll have a baby. Also, let's talk about the Fed meeting over the next two days, and why it's time to hedge... [Garrett {NAME}]( Dec 11   [READ IN APP](   Dear Fellow Expat: As my wife entered her ninth month of labor in 2017, we made a deal. I would not drink any alcohol during the final three weeks before her due date. It was a stressful time for everyone. It was also winter in Chicago – a time of year dedicated to drinking drinks inside and eating pork. But I put on that brave face and pushed through those 21 days like a breeze. She was due December 7. My daughter didn’t arrive on the due date. Or the day after. Or the day after that. Three weeks had turned into four weeks. My wife was ready to explode, and I took the dog out every night. On December 11 at midnight, the start of the day, I walked the dog up and down the block. Suddenly, I heard my name. It was my lacrosse coach from college, and I hadn’t seen him in a very long time. He invited me inside the bar across the street to talk. And in the next 20 minutes, I had two Corona Lights and three shots of Malort. [Upgrade to paid]( Hurrah… Huzzah… FRIENDSHIP! I then returned home to go to bed. One hour later, my wife’s water broke. I told her I was nervous and couldn’t drive to Prentice (the Women’s Hospital at Northwestern). So, we took an Uber to the hospital. (I told her a week later. And she had a Chocolate martini right afterward.) There, she was in labor for one more day (before an emergency C-section) – and Amelia was born on December 12. It’s been six years, four homes, two states, and one Honda HR-V (that I never wanted to own.) But I wouldn’t trade it for everything. That Uber drive down Lake Shore Drive in the middle of the night was one of the most memorable moments of my life. I will always equate that road with my daughter's birth – and I will say that it surpassed the Pacific Coast Highway from Los Angeles to Malibu in my ranking that night. That said, if anyone is having a child at Northwestern University Hospital, I highly recommend the martini bar Beatrix attached to the side of the hospital. You didn’t hear that from me. Let’s talk about the Fed’s meeting that kicks off tomorrow. It’s Time to Hedge I didn’t have to worry about a market reversal when Amelia was born. It was 2017, and the Fed was pumping money into the system. A year later, however, the S&P 500 fell 20% in December 2018. And since then, we’ve had three financial crises. No one cares. I state this because all of our problems are due to the Fed and the Treasury Department. But that said, I’m bullish on the market because of bad monetary policy that will drive asset prices higher as they try to paper over deflation and address the power of AI. Today, I sent an email to my team - and it states the following. I might be a bear… but I’m a realist at the same time. Here’s my message… I apologize for Comcast's inability to deliver a basic product during work hours. My editorial feedback is based on most monetary policy research combined with a deeper appreciation for how the algos have operated for a decade. I state this as a “contrarian bear.” That makes this conversation bullish. Structurally, the Federal Reserve has supported the economy significantly despite the narrative that we’ve been reducing the balance sheet. This isn’t new. It’s been a trend for the last 11 years (but amplified in March 2009… but started after the Dot-Com Bust in 2002) Even though we have seen significant short-term declines in the market – December 2018 and March 2020 – driven by a market reaction to monetary policy expectations, my crucial focus remains Inflation Targeting for the longer term and how it adapts to Artificial Intelligence. Inflation targeting has been the Fed’s unofficial efforts around monetary policy since 1993, which became official in 2012. It is the basis of monetary policy that aims to confront the “dangers” of deflation. All economic policy in the post-Bernanke era is driven to provide ample liquidity – hell or high water. This was the policy adopted by Europe in 2014 – which has irrationally driven markets higher, despite zero efforts to tackle the ineptitude of fiscal spending (and related policy). If you wonder why America is doomed economically – look no further than the realization that the “East” now controls the bulk of the nuclear arsenals, oil production, food supply chains, and the things… that… matter… America is driven by financialization and exporting shows about dancing That said. Before this period of destruction… “Investors can make unprecedented profits… ”Why? Inflation targeting and the inevitable expansion of fiscal and monetary policy. This all started in the mid-1990s because Larry Summers smartly argued that Americans would not be happy if their “Nominal” wages declined and the value of their houses went down. Nominal is different than “real,” – but think about the average American’s understanding of basic finance. So, if the wages went from $50,000 to $45,000 because absolute values went down (Because of the first wave of digitalization in the economy – read: Dot Com/Online Retail), they will protest. It doesn’t matter that technology’s role in deflation creates abundance… they argued that Americans are dumb. So – inflation targeting. The idea is to create 2% inflation to inflate wages, home values, and everything else. It doesn’t matter that the value of TV technology has gone down 99% since 1978. Just ensure that people feel richer “nominally” because they are too stupid to understand “real” wages. Now, fast forward to the fourth industrial revolution. If AI does what we expect it to – if it drives up productivity while creating large amounts of “deflation” in wages and supply chain efficiency (and that’s just two factors)… how does the Fed react? Jeff Booth (author of The Price of Tomorrow) and I argued that the debt system can’t sustain deflation. You need more money to paper over previous debt. Michael Howell also made an argument about the central banks post-2012…, so they paper over deflation. Papering over is a critical statement because it seems so mundane. That papering is designed to help boost GDP (which will take a hit because of efficiency in AI and reduced business supply chain costs), and the government and Fed make more significant efforts to keep the game going. That papering over – which they have done since 1993 and especially since 2012 – will create capital that flows into risk assets – like equities. This can and will support irrational valuations. Inflation targeting (and the increase in the money supply) has a remarkable causal relationship with the post-93 market. There are “booms and busts,” but if we follow liquidity expectations – Howell’s work – we can project a bull market through 2026. Despite my expectations around a market-facing economic reality, I’m starting to expect a no-landing for the economy (one-quarter of negative growth followed by the deployment of massive amounts of infrastructure spending in the third quarter for political purposes). Finally, I stress this. Market history doesn’t matter in the post-Bernanke world. We must stop saying, “The last X times this happened, the market returned Y.” It’s a different world than before the Great Financial Crisis. When the Fed started its efforts to refinance problems from the 2008 crisis in 2012 – the then-Fed chair let the mask slip. Bernanke’s undying commitment to liquidity (he studied the Great Depression his entire life) brought this market rally for 11 years, and his philosophy was adopted by every central bank of substance from Europe to China. The more technology creates deflation – the more the central bank MUST provide capital to “refinance” existing debt. Otherwise, it’s game over, and we have the real economic contraction we deserved in 2008.You know… the year capitalism died.-G- This is why you must invest in the equity markets. This is why you must ignore the media. The long-term bias of the market is your only hope. No one is coming to save us. Stay positive, Garrett {NAME} Secretary of Defense You're currently a free subscriber to [Postcards from the Florida Republic](. For the full experience, [upgrade your subscription.]( [Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()