Intelligent Investing Has (Finally) Returned

Part II of Volume II, Issue III

There are few better places to consider the past few days of banking chaos than a small room hidden away in Edinburgh’s financial district — not far from where the godfather of free markets, Adam Smith, once lived. The Library of Mistakes is devoted to capitalism’s disasters: You can see a shirt signed by Nick Leeson, the rogue trader who brought down Barings Bank, and a portrait of the legendary American fraudster Charles Ponzi. Old newspapers proclaim government bailouts of long ago while the shelves groan with tomes like “Where Are the Customers’ Yachts?”

The library takes as its motto an aphorism of James Grant: “Progress is cumulative in science and engineering, but cyclical in finance.”

~ Bloomberg, March 21, 2023

Every crisis features human actors, and they always seem to step on the same rakes. They overlend and they overborrow; they get bullish at the top, and then, wouldn’t you know it, they get bearish at the bottom. The longer I live, the more I see that human beings have no business dealing with money. They are genetically unequipped for it, and it’s a wonder that anybody’s solvent.

Then again, no two crises are exactly the same. Except for the differences, after all, the historians would have all the money…

~ Jim Grant, of Grant’s Interest Rate Observer, April 16, 2009

---

Editor’s Note: This is Part II of Volume II, Issue III of The Macro Value Monitor. Part I, In a Minsky Moment, a Controlled Burn Jumps the Containment Lines, can be found here.

A full PDF of this issue is available here. To listen to The Macro Value Monitor, click on the headphones icon in the Substack app.

---

---

As it happened, one of the speakers earlier that Thursday in April 2009 at the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies was none other than Jim Grant.  In his speech that day, he took conference attendees back to an earlier era of rapid technological progress and change, which also contained many of the hallmarks of irrational exuberance that had clearly been harbingers of looming turmoil to those listening in 2009.    

He told the story of the expansion of telegraph lines and railroads in the latter half of the 19^th century, and the degree of economic disruption and rapid speculation those new technologies caused.  A summary of the railroad aspect of this disruption, and the real estate bubble it fomented, was related by Grant in the story below: