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2013 Year in Review: Austerity is not a policy. David B. Collum Betty R. Miller Professor of Chemistry and Chemical Biology Cornell University e-mail: dbc6@cornell.edu Twitter: @DavidBCollum Background
“Dear Cornell students, don’t learn economics from your chemistry professor.” ~Matt Yglesias,
Salon
Every December, I write a Year in Review or, as my wife calls it, my Urine Review.
1,2,3,4
It has found a home at Chris Martenson’s website PeakProsperity.com
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with a secondary posting at Zerohedge,
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whose rabid followers crashed the server last year by clicking the crap out of it. What started years ago as a simple summary intended for a couple dozen wingnuts morphed over time into a much more detailed account that accrued upward of 100,000 clicks last year. Owing to a complete lack of street cred, I’ve got to throw my elevator resume at you right here, right now. I’ve been quoted in the
Wall Street Journal
on the Flash Crash (no knowledge needed)
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and been interviewed by Lauren Lyster on
Capital Accounts
(Russia Today),
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Chris Martenson (Peak Prosperity),
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and James Howard Kunstler (Kunstlercast).
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I found my way into the
Guardian
this year commenting on the 2016 presidential race
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and The Macro Tourist Hour on BTFDtv.com just to rant.
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(I’m still waiting for
Cosmopolitan
to ask for comments about beauty products.) As this review is being uploaded, I am scheduled to do an interview with Erin Ade on
Boom Bust
(Russia Today), which should be uploaded concurrently on YouTube.
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This fall a bunch of Cornell undergraduates invited me to be a “distinguished lecturer” on economics
not
chemistry. Apparently, they don’t follow Matt Yglesias on Twitter. With that said, a gallant defense of my honor came by e-mail: “I can think of no one better than you, Dave, to fill the void of an increasingly undistinguished profession of economists. They have excellent judgment at Cornell.” ~Stephen Roach, Yale and former executive director at Morgan Stanley Why would anybody give a damn what an organic chemist thinks about investing, economics, and politics?
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I’m baffled. As a half-hearted defense, in over 34 years of investing with a decidedly lopsided portfolio, I have had only two years in which my total wealth decreased in nominal dollars. My 14-year
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return since 01/01/00 is 9% compounded with no leverage and no glass eye. (We all made money in the 90’s so I don’t even go there.) Each review begins with a highly personalized account of my efforts to get through another year of investing, which is followed by an overview of 34 years of investing. I thought maybe I would drop the former, but I couldn’t because one of my two losing years was this year. Come again? You lost money
this
year? Yep, I’m the guy—an urban legend in the flesh. You cannot teach this kind of prowess. It was a
very
expensive year to be in the Church of Austrian Economics and Hard Assets. Thus, I must continue with the personal overview as a form of a trip to the confessional. The investing section may be instructive for those interested in my approach and for gold bulls on suicide watch. The bulk of the review, however, describes thoughts and observations—the year’s events told as a narrative. The links are copious, albeit not comprehensive. Some are flagged as highly recommended. I try to avoid themes covered amply in my previous reviews. I won’t pick on the Roth IRA anymore (although I was right),
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and I’ve left resource depletion alone (it’s still a problem). Nonetheless, some gifts just keep on giving. Debt permeates all levels of society, demanding comment every year. Precious metals are a personal favorite. This year seems to be more about politics and less about economics. Sections entitled Baptists, Bankers, the Federal Reserve, and Bootleggers describe the players involved in the biggest battle since Frodo melted down the ring for beer money. Society is juiced on easy money, leaving some of us breathless. I finish with a book list that shaped my thinking. Every year I have declared with an increasingly shrill voice now inaudible even to dogs that civil liberties must be protected at all costs and that we all should avoid using “conspiracy” as a pejorative term. Oh...my...God! Just as smartphones have put to rest the existence of Yeti, aliens, and the Loch Ness Monster, 2013 put to rest any claim that conspiracies do not exist. If you denounce conspiracy theories and conspiracy theorists to me, I will remind you of the quote from a 20th century philosopher: “Everybody has a plan until they get punched in the face.” ~Mike Tyson
Contents
Footnotes appear as superscripts throughout this review; associated hyperlinks can be found here.
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The contents are as follows: Investing The Bear Case The Economy Broken Markets Gold
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Debt and Retirement Municipal Debt Student Debt Bonds and Sovereign Debt Housing the Mortgage Markets Europe Cyprus Rest of the World Confiscation The Fourth Estate CNBC–Rise Above Bankers and Finance Bootleggers Paul Krugman Baptists Government Gone Wild Mr. Obama Goes to Washington Civil Liberties Part 1 Civil Liberties Part 2: Edward Snowden versus the NSA Books Acknowledgements Links
Investing
“People only want to be contrarians when it’s popular.” —Rick Rule— I have changed almost nothing consequentially in my portfolio year over year. I still split my retirement contributions into cash and energy equities. Rebalancing was achieved primarily by the brutality of market forces: 12/31/12 12/31/13 Precious metals et al.: 52% 41% Energy: 15% 21% Cash equiv (short-term): 30% 34% Other: 3% 4% My portfolio was dragged underwater in January by the continuing bear market in precious metals and is now swimming with bottom feeders. In a relatively rare instance, but for the second year in a row, an overall return on investment of –17% was beat by the S&P 500 (22%) and Berkshire Hathaway (28%) in what was
not
a photo finish. (Stevie Cohen had a better year.) As a reminder, however, for the second year in a row, the majority of the return on the S&P was p/e expansion, and according to Forbes, “More than 100% of equity market gains since January 2009 have taken place during the weeks the Fed purchased Treasury bonds and mortgages.” We’ll return to this risk later.
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