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The Gist of…

The only constant in human experience is change.

We live only in the present, confounded by a past we barely understand and a future we can’t predict, control or prevent.

Our skill at fitting clever stories to past events can mislead us into thinking we actually understand the past. Far more dangerously, we’re easily persuaded that this “skill” aids in understanding and predicting the future.

Markets and governments are both human institutions; people relating to others in a certain way. Like all human institutions, they both can fail on occasion. Fortunately, their deficiencies are normally outweighed by their benefits. If they didn’t produce long-term value they would have disappeared over time, just like our tails.  The argument’s over the relative size of the public and private spheres, not the need for both.

Incentives matter.

Everyone spends their own money more carefully than other people’s money.

Borrowed money is cheaper than earned money.  Especially during a boom, it takes less work to borrow money than to earn it.

In science, when a measuring device transmits bad data it’s called “corrupted” data.

Prices are the information system of the market.  The free movement of prices is how producers and consumers tell each other what they value, need and would pay for.

Macroeconomics first goal is the manipulation of the price of capital (interest rates) for a higher purpose (taming the business cycle).

Corrupted prices cause poor investments. The real cost of the current “artificially low-interest rate regime” is the poor investments it encourages. Many poor investments fall in the category of financial engineering. Here’s today’s real-world example:

Priceline To Sell $1B Convertible Bonds, Buy Back $1B Shares

The stock’s days off an all-time high, has quadrupled in price the last three years, sells for 27.5 times last years earnings and management thinks now’s the time to borrow a billion dollars to buy back their own stock?

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