After 47 Years, Stephen Lewis Calls It Quits In A Scathing Critique Of Modern Markets

Tyler Durden's picture

For decades, portfolio managers around the world would receive the periodic "Economics & Policy" newsletter, full of original insights on everything from the markets, to the economy, to geopolitics, as penned by Stephen Lewis, chief economist at ADM (if best known for his tenure at Monument Securities which was eventually absorbed by ADM). Sadly, on Friday Lewis sent out his "Valediction" - the last ever Economic Insights report. Instead of commenting on it, we present his full thoughts in their original form as this particular career epilogue, a scathing critique of capital markets, modern economists, central bankers, and everything else that is broken in today's society, is a must read for all market participants, as well as economists, politicians and central bankers.

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Economics & Policy


By Stephen Lewis of ADM Investor Services International

After more than forty-seven years spent observing and commenting on economies and financial markets, I shall be retiring this week to eke out my remaining days, as is fitting, in contemplation of the eternal verities.

When I  set  out  in  the  markets, on 5 January 1970, the yields on sterling bonds, including  those  issued  by  the  UK government (gilt-edged),  were expressed  in  pounds,  shillings  and  pence. One of the first tasks to which I was put, when I joined the stockbroking firm of Phillips & Drew, was to convert these yields into the decimal form with which our computer, fully occupying the building on the opposite side of the street, could cope.  Back then, the London clearing banks were required to hold in cash an amount equivalent to at least 8% of their deposits and 28% in liquid assets (cash, money at call and Treasury and commercial bills). There was not much risk of a bank liquidity crisis in those days. International asset diversification for UK-based investors was impeded by capital controls, with returns subject to variations in the premium on scarce investment currency as much as in the underlying prices of the assets held. For all the restrictions, though, octogenarians commonly travelled into their offices in the City each working day primarily for the fun of it.  It was a different world, unimaginable to those too young to have known it.  When told that we worked at our desks in candlelight during the power cuts of the three-day week in 1973-74, they naturally find it hard to comprehend what it was that we could possibly have been doing, so dependent have we lately become on electricity.

Since 1970, there have been nine UK prime ministers, thirteen Chancellors of the Exchequer, nine US Presidents, seven Chairs of the Federal Reserve and six Governors of the Bank of England; central bankers tend to stick around. Through most of this period, the trend was towards more liberal economic and social conditions, though latterly a reaction seems to have been setting in under the label of ‘populism’.  While there are vested interests still championing the liberalising process, the election of  President Trump shook the confidence of those who had believed that the ‘end of history’ had come with the fall of the Berlin Wall. It no longer seems inevitable that the future will bring ever more globalisation under the banner of the peculiar set of liberal values developed in the USA during the late twentieth-century. 

However that may be, after almost a half-century of analysis, there are certain conclusions I would draw.

What stands out is the failure of economics, as an intellectual discipline, to come to grips with the real world.  This was obvious at the time of the global financial crisis of 2007-09.  Since then, academic economists have worked on the assumption that their lamentable performance when it came to  warning  of impending troubles has been forgotten,  or  else  they hope the world at large believes they have so refined their understanding that there could be no recurrence of that debacle.  But they have not subjected their ‘science’ to the root and branch criticism that is clearly called for. As they argue whether they have enough Greek  letters in their equations, events take their own course. A particular weakness in economic analysis arises from the tendency of economists to regard these letters as signifying objective entities. Yet to proceed in this way is to overlook the difficulties attaching to the collection of relevant data. There are problems, not only of the familiar kind relating to proper sampling and timeliness, but of a more fundamental nature. We are not entitled to assume that the concepts favoured by economists in their analyses – consumption, investment, etc. – refer to clearly-delineated objective realities that are important in a causal  explanation  of  economic  events. After all, whether an item of expenditure is to be classed as consumption or investment is, to an unsettling degree, a matter of convention. 

The sadness is that central bankers, in moving to an almost exclusively macro-economic focus in conducting monetary policy, have paid increasing attention to the prescriptions of these self-styled ‘scientists’ of the economy.  Virtually all central banks now subscribe to the frankly weird view that economies cannot grow satisfactorily unless they maintain a 2% rate of arbitrarily- defined consumer price inflation.  This is despite the evidence in this and earlier ages that economies can grow quite well in the absence  of  such  inflationary  price  behaviour  (after  all,  the  2%  target  implies  a  doubling  of the price-level every  thirty-five years).  Thus, we are presented with the spectacle of central banks seeking to pump up demand, even when labour markets are tighter than they have been for decades past. The argument  is  that, without  the  prospect  of  higher  prices  in  the  future, consumption and investment spending would both die away.  But that is not how human psychology works. It may well be that investors’ demand for financial assets depends on the outlook for asset prices but consumers and businesses view the markets in goods and services in a different way.  They must do so, or else it would never be possible to launch new products where prices start high but then decline, reflecting economies of scale.

Central banks have come round to accepting the view, first expressed by Milton Friedman, that inflation is always and everywhere a monetary phenomenon.  But this view is misleading. Friedman based his dictum on his reading of history. Money supply and nominal GDP seemed to be broadly correlated. A more precise statement of the underlying relationship is that inflation occurs when central banks accommodate inflationary forces that usually arise from non-monetary economic and social factors. Mr Bernanke, drew the conclusion from his broadly Friedmanite analysis of the Depression years, that monetary policy could prevent deflation, which he understood to mean falling consumer prices over however short a term. Consequently, he led the world into the most extreme policy of monetary  accommodation since the invention of money. The longer-term consequences of the resulting misallocation of capital have still to be seen. In any  case, the efforts of central  banks in the advanced economies to push consumer price inflation up to a sustained 2% pace have so far proved futile.  A 2% inflation rate,  incorporating the hedonic adjustments that the statisticians have adopted over the past twenty years, seems to be above the sustainable rate in current economic conditions. There was a time when central banks needed these adjustments if they were to achieve a published inflation rate as low as 2% but recently the statistical tricks have contributed to the monetary authorities’ embarrassment in continually falling short of their inflation targets.

It is telling that the theory on which central bank policies are now based should have assimilated the behaviour of all economic agents to that of the financial markets. This has been part of  the move away from output and employment as the goals of economic activity towards the generation of financial returns within a short-term  perspective. It is consistent with the development of ‘financial capitalism’, from the 1975 May Day reforms on Wall Street, through London’s ‘Big Bang’ in 1986 to the massive growth in financial instruments in the early years of this century. The academic tide ran, not altogether surprisingly, in a direction favourable to the interests benefiting most from this development of the capitalist economic model. While academic economists whiled away their time refining their mathematical  expressions, the past few decades were witnessing a major shift in political thinking about the economy.  Whereas in 1970 a compromise had been reached between capitalism and government regulation that accorded government a role, albeit limited, in managing markets and the economy, this broke down in face of the mounting strength of market forces and after continual disappointment with economic growth and inflation control.

The first crack came with President Nixon’s ‘closing of the gold window’ on 15 August 1971. This action, which marked the end of the fixed exchange rates that had, for the most part, prevailed up to that time, was arguably the most momentous event in economic policymaking of the past half-century.  In fact, on the day, it caused remarkably little stir in the London markets, only a sense of puzzlement.  This may well have reflected London’s isolation from international developments, stemming from  the very  strict UK exchange control regime in  force  at  that time. But with the advent of the Thatcher and Reagan administrations, free-market ideology was clearly in the ascendant. 

The intellectual argument in favour of free markets, as against rigged markets and government intervention, is compelling. However, anyone who has been involved in markets will be aware that they are never perfectly free and fair to all participants. Instead of accepting uncritically the virtues of free markets and indiscriminately breaking down barriers and safeguards, policymakers would have been better employed addressing the dangers posed by the ‘free’ markets as they were developing. This was the lesson of the 2007-09 financial turmoil but it is a lesson that, by and large, has not been heeded.  The post-2008 growth in global credit massively raises the risk of a future crisis, despite official measures requiring more stringent bank capital requirements. Even these strengthened defences would prove flimsy in the event of any future collapse in confidence, a collapse that is all too likely to occur in view of the aforementioned misallocation of capital.

The promoters of free markets are wont to appeal to Adam Smith as their authority. This Enlightenment philosopher has suffered a similar fate to such luminaries as J M Keynes and Karl Marx, in that his followers have presented a distorted view of his insights. The ‘free marketeers’ focus on Smith’s work The Wealth of Nations without paying heed to the ethical presuppositions underlying that analysis.  His assumptions were derived from Hutcheson’s moral philosophy and are set out in his earlier publication, The Theory of Moral Sentiments, a work that is usually ignored or denigrated by Smith’s modern-day adherents. To be sure, his view of human nature, as there set out, is rather benign. He makes no allowance for the cheating and exploitation that characterise behaviour in actual market situations. His failure to understand, or at least to recognise, the moral failings of his fellow-men diminishes the value of his economic analysis as a guide to action.

Free markets have gone hand in hand with globalisation, the strengthening power of transnational commercial interests relative to that of national governments.  At the same time, in the advanced economies, there has been a growing sense among the many that a few are making off with the fruits of economic progress. These developments are probably connected. 

The positive function of the nation-state is to maintain equity between the social classes. The nation-state is the largest unit that can feasibly fulfill this function. I realised something was going badly wrong several years ago when a respected British fund manager said that he felt he had more in common with a banker in Frankfurt than with a factory-worker in Birmingham. The nation-state was no longer fostering a sense that we were all in it together.  The subsequent social tensions and rise of populism were no surprise.  In 1970, the UK ruling elite was seeking to dissolve national sovereignty in a broader European entity.  In view of the unhappy record of subsequent UK-European relations, the 1973 accession to the EEC is likely to be judged a historic mistake.  I had not expected to see the day when that decision would be reversed.  But Mrs May and her advisers seem to understand the crucial importance of the nation-state in preserving social justice.  If they have a chance of living up to their words, the UK may well become a beacon to the world. 

With that thought, I shall lay down my pen and depart in peace.  

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lester1's picture









the Federal Reserve's



Muddy1's picture

As for Stephen Lewis, he will feel better after a haircut, eyebrow trim and wax, and a shave.

Uchtdorf's picture

I stopped reading when I saw the guy's comb over.

Ace006's picture

It's good to focus on the fundamentals.

meditate_vigorously's picture

Capitalism and Marxism are not economic systems. They are control systems

Christianity, Islam, and Judaism are not religions. They are control systems.

Agency is not something most individuals have. They are like programmable tools. To have agency a person must have the IQ first. Then they need to put in the work. But first, they must be shown that such things exist and are possible. They must be shown that they have been programed.

Not all chains are bad, just the invisible ones. Sometimes the greater price is in the chains that we refuse. Love, for example.

me123me's picture

So i guess you think Barbarianism is a good thing?

InnVestuhrr's picture

He wrote "Christianity, Islam, and Judaism are not religions. They are control systems"

And to you this means a choice between those absurd mythological cults and "Barbarianism".

You are a perfect example of the worst effect of those absurd mythological cults, ie they destroy the capacity for independent rational thought.

Tom Green Swedish's picture

Can we move forward already? 2008 is done and gone. We cant change it now and certainly if the only advise after 50 years of "analyzing" central banks the best he came up with is 2 percent inflation targets are nonsense and all nations should have social class integration? Good then lets just go socialist everybody gets the same.

Oldwood's picture

Slave owners were convinced that they were doing their slaves a favor....that they would surely starve and perish without their "stewardship".  It was just a happy coincidence that they got supremely wealthy in the process.  

ScratInTheHat's picture

"Slave owners were"??? I got a news flash for you! Lincoln and the 1860's GOP didn't free the slaves they enslaved the rest of us! It's a sad thing when slaves don't even know what they are!

meditate_vigorously's picture

"The nation-state was no longer fostering a sense that we were all in it together. The subsequent social tensions and rise of populism were no surprise."

To be "all in it together" requires having things in common. Race is central to that. Next is culture of which religion is central. Christians did not fail Christianity. Christianity failed Christians, because it is a religion that robs people of personal growth and the agency needed to find spiritual growth and meaning. It simply spoon feeds people answers as if magic is a property of the universe and people are incapable of understanding the universe.

God/s surely exist, but we are but lower ranking ones. Who knows the higher forms? Does it matter? Should you find peace after death or before it? Whose responsibility is it to give that to you? Should it come from an EBT? Arahamic religions offer people and EBT for their soul. No success is necessary, because if you fail, it's not your fault. It's original sin. There is no winning. Even Jesus doubted.

The control system is built in that any questioning has a form letter answer ready to go so as to deflect blame onto the questioner. That is not freedom. That is not agency. That is not Divine.

anarchitect's picture

"The nation-state was no longer fostering a sense that we were all in it together. The subsequent social tensions and rise of populism were no surprise."

Idiocy.  The nation state is a vehicle for populists, and those who administer nation states are the fountainheads of social tension.

Son of Captain Nemo's picture

A quick "post it" note to Stephen Lewis

Thanks for fucking us over in every orifice till we bled and staying with the depraved "financial debauchery" for half a century, making yourself disgustingly rich by aiding and abetting the system and then marking your ungraceful "exit" through that carnage with this brilliant summary boasting about how hard you fucked all of your clients over... And probably laughing as you wrote each of them!


Not your career of course... But the losers who kept going back for more when those timelines you illustrated were warning signs they simply chose to ignore regardless of their cost(s)!

zebrasquid's picture

What the hell was that?

Lonesome Crow's picture

A slow and gentle flipping of the bird

Lonesome Crow's picture

Good coda. I wasn't sure at first if he was going to come to it:

"At the same time, in the advanced economies, there has been a growing sense among the many that a few are making off with the fruits of economic progress. These developments are probably connected.... But Mrs May and her advisers seem to understand the crucial importance of the nation-state in preserving social justice."

Central Banking Cartel—One World Oligarchy— equals the success of "monetary policy."

Catahoula's picture

Market's going higher. Don't fight the tape.

Bubba Rum Das's picture

Market's going higher. Don't fight the tapeworm.

HoserF16's picture

Markets? What Markets? There is only Interventions...


Bubba Rum Das's picture


Just don't get caught in the selloff like my Dad did in '08...Old boy lost about half a mil., fortunately he re-invested what he had left over from the selloff, into gold @ under $700 an ounce; he got out when gold hit almost $2000 a number of years ago...

He was pretty fucking old, but he wasn't stupid...
Some lost almost everything in '08; he saw what was happening soon enough that he cut his losses & came out a WINNER IN THE END.

crazytime's picture

I didn't get the memo. 07-09 bust was caused by free markets? Well, that changes everything. Guess I better grab a prayer rug and turn toward D.C.

Codwell's picture

LMAO. We don't need at least 2% inflation ? Yes we do because of the socialist globalist structure demands inflation in an attempt to recapture revenue at an inflated rate to pay off the government debt incurred by socialism.


But his most sour grapes comes from his lament of what he considers the reversal of socialist globalist Machinery which elitist paper rentiers like him skim off of. Enjoy your summer in the Hamptons socialist  leech.

Mini-Me's picture

We're not going to have genuine markets again until some bankers go to prison.  Until then, enjoy your rigged "markets."

gdpetti's picture

Well, actually, many of them do, only in their world, going into govt service is prison..... 'doing time' in DC they call it.

dogballs's picture

Stick it in, pull it out, but don't them get your trouser trout.

rbadal's picture

We will miss Mr. Lewis.

hola dos cola's picture

The "misallocation", been pondering exactly that today. Why did the Wall Street media start plugging European stocks and especially highlighting the banks?

Look at the chart for the S&P500 for example. Most if not all earnings outof the way, where's the upside going to come from? From here every point up is one point down in credibility, even in the eyes of the most deluded.

Is the propaganda/plugging of European stocks (banks) signalling 'the Fed and circle' need more room under the psychological ceiling aka market top for further misallocation? The openly unpatriotical component (invest abroad!) taken for granted iin times like these suggests any target set and born from damage control must be close.

Guess credibilty is up and tha VIX comes hitting home.

hola dos cola's picture

From another article here today:


If the Fed is scared to take money out outof the market, the Wall Street media's call to invest in European stocks is helpful in letting some steam of. The video offers an explanation why the banks are being highlighted: that way the money only goes stealth.

Anyway, TOP.

Pft's picture

Europe (and others) has wised up to the scam that only the US has the ability to spend w/o fear of deficits as a result of having the worlds reserve currency which it is because its backed by oil (petrodollar). Trump wants more money from NATO allies but unlike the US these countries cant spend money they dont have. Techically not a dime of the defense budget is paid with tax dollars, its financed with debt (assuming everything else gets paid for with taxes).

So the Fed must help share the wealth and in return the EU joins the commonwealth (or becomes our defacto 51st state) and NATO becomes or remains just a branch of our military.

Of course if assets will be deflated in the US with some bubbles popping as they must, someone else has to bubble up to keep the bubblemasters who rule us happy, or a really big war.

Akhenaten II's picture

Nice sentiments but ADMSI is about as 'deep state' as you can get."

"ADMISI is a wholly owned subsidiary of Archer Daniels Midland (UK) Limited and indirectly is a wholly owned subsidiary of the Archer Daniels Midland Company (ADM)."

Owned by oligarchical financial interests they are used by the 'Crown' along with Cargill to control food markets, rape farmers and screw everyone else.  #parasites


Nolde Huruska's picture

January 1970 ... I was in high school drinking Boone's Farm apple wine.

zebrasquid's picture

Hopin' Gator was even better!

saveUSsavers's picture

The CB criminal bastards believe " if there is deflation, people will wait to buy stuff at a lower price " !


Pft's picture

CPI is lie (adjustments) and understates inflation to reduce COLA's . Unemployment figures understate unemployment and underemployment. GDP growth is a fiction as a result of the understated inflation figures , and nominal GDP growth is simply an increase in the money supply (debt). GDP's failure to consider consumer debt used in expenditures does not provide income growth (unlike business credit in the non financial sector) makes it a poor measure of the real economy anyways.

Real income growth among individuals is negative over the last 30 years among the bottom 90% and living standards are being maintained only by increased consumer debt. Inheritances passed on to the next generation in this class, such as tgey are dwindle to nothing due to a defacto death tax (cost of health care after age 50 and nursing homes at the end).

conraddobler's picture

The entirety of the problem lies in modern civil society which is nothing more than codified stratification and theft.

Humans are designed to live in small social groups and perform relatively simple routine tasks but also and most importantly they are designed to adhere to a moral code that values both the individual and the group.

Divorce from a natural existence that demanded harmony with creation is the wages of sin and will result in either our reconnection with what we have lost or our destruction.

We have proven to be unworthy gods.

Ace006's picture

The Constitution was a noble effort to keep government off our backs but the seemng crystal clarity of the enumerated, limited powers was easily ignored once the money started to flood federal coffers after the 16th Amendment.

Greed cut through the restraints of the Founders and Ratifiers and the result is a gargantuan state that is a bad joke by the standards of 1791 and untouchable? by mere mortals. Lunatic ideas slosh through the desk farms of Congress and the bureaucracy, chief among which are socialism, military adventure, and identity politics. The increasingly apparent effects of which are national bankruptcy and and Sam Francis's anarcho-tyranny.

I don't know about Mr. Lewis's idea that the nation state is to maintain some balance of the equities between the classes but I do know that the state is charged with enforcing the legitimate laws of the land and this it will not do. Exercising one's right of self defense is sure to involve? an expensive and terrifying brush with either the civil or criminal law and the worst kind of black criminal rejectionism and anarchy is not only unpunished but rewarded. Border enforcement has for decades been non-existent for all intents and purposes, notwithstanding the grave criminal consequences to citizens from foreign competition, chauvinism, and hostility.

Laws establishing black and other minority legal privilege over white people are enforced vigorously while AntiFa scum operate without poluce interference. Ridiculous ideas like Black Lives Matter and "civil right" demogogues exist but to politicize criminality such that scum like Trayvon are elevated to sainthood.

The Law today is so bass ackwards that that state bar associations and supreme court justices bemoan? the lack of civility in the bar and, if they've beaten that to death, they weep over the dearth of lawyers willung to work pro bono. The mortal dismemberment of the constitutional scheme, however, does not warrant even passing mention.

So, yes, the moral code is debased and, it clearly appears, we arw incontinent in fiscal matters and positively suicidal when it come to social and political matters.

August's picture

So, you're saying that Stewart Brand was wrong?

Lost in translation's picture

Riches and self-righteous bombast won't be enough to keep piano wire off your neck.

Later... or sooner... you will hang by the neck unto death, Mr. Lewis. You will, most certainly, be killed.

See you then... ; D

Ace006's picture

I see you have made a fair reading of this gentleman's essay. The reference to piano wire was classy.

matinee55's picture

all those (usually in retirement) who elude to the truth, usually succumb to the wire

GooseShtepping Moron's picture

This was beautiful. Absolutely beautiful.

Bon voyage, Stephen Lewis. May God bless you and keep you.

turkey george palmer's picture

Low hanging money is hard to find. Let the financials cannabalize each other for Thier survival. Humanity is toast

pparalegal's picture

But what does all that have to do with what is now so important to the public school taught, the Kardashians and the latest Galaxy 8 cellphone?  

Your honor the defense rests.

Lady Jessica's picture

This was very well written although its only major revelation for me was the mention of Smith's "The Theory of Moral Sentiments".

It nicely summarises the general sentiment here, particularly the conviction that any economic analysis must have a moral foundation, if it is to justly guide action.

ZH could do much to retrieve its former stature by posting more of this sort of thing.

Scuba Steve's picture

Keep the liberal whores away from ZH and you would get a ton of articles like this.

House_Wife's picture

Some might say, the rumbling (perhaps due to vast numbers of thirsty leftist muslim feet) may not be heard by Mark Joseph Carney.