Thoughts From The Frontline

This highly acclaimed blog is primarily focused on private money management, financial services, and investments. John Mauldin demonstrates an unusual breadth of expertise, as illustrated by the wide variety of issues addressed in-depth in his writings.

Thoughts From The Frontline

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  • The Last Argument of Central Banks

    For a central banker, deflation is one of the Four Horsemen of the Apocalypse: Death, Famine, Disease, and Deflation. (We will address later in this letter why War, in the form of a currency war, is not in a central banker’s Apocalypse mix.) It is helpful to understand that, before a person is allowed to join the staff or board of a central bank, he or she is taken into a back room and given DNA replacement therapy, inserting a gene that is viscerally opposed to deflation. Of course, in fairness, it must be noted that central bankers don’t like high inflation, either (although, looking around the world, we see that the definition of high inflation can vary). In the developed world, 2% inflation seems to be the common goal. You wouldn’t think that 2% a year is a significant change in the overall price structure, but the panic among economists that would ensue with a 2% price deflation would border on hysteria.

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  • The Flat Debt Society

    Since at least the beginning of 2006, the most asked question I get after a speech is “Do you think we will have inflation or deflation?” In an attempt at humor, my answer has been “Yes.” I go on to try to explain that we are in a deflationary environment, but eventually we will see inflation. When QE1 was announced, there were many pundits (none of the Keynesian variety) who immediately said the risk was for significant inflation, and there were even those (like Peter Schiff) who talked of hyperinflation and the demise of the dollar. Interest rates would rise, and US government bonds would collapse.

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  • The Wayback Machine Birthday Tour

    Today, in the spirit of the wisdom the Cheshire Cat offers Alice, I would ask how you can know where you are now and where you’re going if you don’t know where you came from. You and I have lived through the first nearly 14 years of this topsy-turvy new century together, and many of its details as well as its overarching themes deserve to be recalled. But rather than offering you a dry, plodding recap of recent history, I’ve come up with a different and hopefully more fun way to revisit the past decade and a half.

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  • The End of Monetary Policy

    What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government. This is not to say that there will no longer be events to fill the pages of Foreign Affairs' yearly summaries of international relations, for the victory of liberalism has occurred primarily in the realm of ideas or consciousness and is as yet incomplete in the real or material world. But there are powerful reasons for believing that it is the ideal that will govern the material world in the long run.

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  • Where’s the Growth?

    It’s been more than five years since the global financial crisis, but developed economies aren’t making much progress. As of today, the United States, Canada, Germany, France, Japan, and the United Kingdom have all regained their pre-crisis peaks in real GDP, but with little else to show for it.

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  • What’s on Your Radar Screen?

    As I sit down to write each week, I generally turn to the events and themes that most impressed me that week. Reading from a wide variety of sources, I sometimes see patterns that I feel are worthy to call to your attention. I’ve come to see my role in your life as a filter, a connoisseur of ideas and information. I don’t sit down to write with the thought that I need to be particularly brilliant or insightful (which is almighty difficult even for brilliant and insightful people) but that I need to find brilliant and insightful, and hopefully useful, ideas among the hundreds of sources that surface each week. And if I can bring to your attention a pattern, an idea, or thought stream that that helps your investment process, then I’ve done my job.

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  • Europe Takes the QE Baton

    As my Dad would say, “The whole situation seems about a half-bubble off dead center” (dating myself to a time when people used levels that actually had bubbles in them). But I suppose that now, were he with us, he might use the expression to refer to the little bubbles that are effervescing everywhere. In a Bizarro French version of very bubbly champagne (I can hardly believe I’m reporting this), the yield on French short-term bonds went negative this week. If you bought a short-term French bill, you actually paid for the privilege of holding it. I can almost understand German and Swiss yields being negative, but French?

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  • Growth

    As I begin my 15th year of writing Thoughts from the Frontline – some 700-odd newsletters plus 400–500 editions of Outside the Box, 6 books, and scores of special reports – I decided to take a random walk back through some of my writings (and your comments!). With some glaring and notable exceptions that I would like to take off the internet (but won’t because to do so seems somewhat intellectually dishonest), the body of work has held together pretty well. My writing style has matured and so has my thought process – or at least it seems so to me. Writing this letter has been the best personal educational tool I have ever experienced, enriching my life far more than I have probably enriched yours. I’ve done my 10,000 hours. Plus. No college, no course or seminar, could provide me with the wide range of materials I’ve studied.

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  • Bubbles, Bubbles Everywhere

    You can almost feel it in the air. The froth and foam on markets of all shapes and sizes all over the world. It’s exhilarating, and the pundits who populate the media outlets are bubbling over. There’s nothing like a rising market to lift our moods. Unless of course, as Prof. Kindleberger famously cautioned (see below), we are not participating in that rising market. Then we feel like losers. But what if the rising market is … a bubble? Are we smart enough to ride it high and then bail out before it bursts? Research says we all think that we are, yet we rarely demonstrate the actual ability.

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  • Transformation or Bust

    China continues to be front and center on my list of concerns, even moreso than the latest Federal Reserve press release or fluctuation in the Dow (although you should pay attention). I believe China is the single biggest risk to world economic equilibrium, even larger than Japan or Europe. This week my young associate Worth Wray provides us with a keenly insightful essay on what is currently happening in China. I will admit to not having written about China very much in the past five years, primarily because, prior to Worth’s coming to work with me I really had no secure understanding of what was happening there. I know some readers may be surprised, but I really don’t like to write about things I have no understanding of. Worth has helped me focus. (It helps that he studied Mandarin and lived in China for a while, and is obsessed with China.)

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  • Time to Put a New Economic Tool in the Box

    Last week we took a deep dive into how the concept of GDP (gross domestic product) came about. We looked at some of the controversies surrounding GDP statistics that we use to measure the growth of the economy, and we noted that the GDP tool seems designed to reflect and serve an economic theory (Keynesianism) that prefers to focus on the demand side of economic activity. If your measurement of the growth of the economy is entirely defined by final consumption (that is, consumer spending) and government spending, then if you want to try to improve growth you are left with just two policy dials to adjust..

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  • Central Bank Smackdown

    The term “smackdown” was first used by professional wrestler Dwayne Johnson (AKA The Rock) in 1997. Ten years later its use had become so ubiquitous that Merriam-Webster felt compelled to add it to their lexicon. It may be Dwayne Johnson’s enduring contribution to Western civilization, notwithstanding and apart from his roles in The Fast and The Furious movie series. All that said, it is quite the useful word for talking about confrontations that are more for show than actual physical altercations.

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  • The New Normal of Healthcare Spending

    Last year I was one of the very few who suggested that the implementation of Obamacare could cause a recession (see more below). Such a suggestion was universally dismissed by all right-thinking economists, and for very good reasons based in sound economic theory, I might add. But sometimes the real world neglects to adhere to our models and theories, and that was my concern.

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  • Italy: When Hope Is a Strategy

    I came back from Italy this week, and one of my guilty pleasures was being able to sit down and watch the last three episodes, including the season finale, of Game of Thrones. For those readers who are not enthralled with the fantasy epic from HBO or have not read the first five books (will he ever finish?), author George R.R. Martin has written one of the most complex fantasy series ever, about a world where everyone is occupied with who will sit on the Iron Throne.

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  • The Age of Transformation

    One of the many luxuries that my readers have afforded me over the years is their willingness to allow me to explore a wide variety of topics. Not all writers are so blessed, and their output and responses to it tend to stay focused on specific, often quite narrow topics. While this approach allows them to dig very deep into particular subject matter, it can reduce the total scope of their research, vision, and advice. But don’t get me wrong; these types of letters are very important. I benefit greatly from being a subscriber to a number of letters that give me detailed analysis for which I simply don’t have the time to do the research. There’s just too much going on in the world today for any of us to be an expert in more than a few areas.

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