Hedge Fund CIO: "The Rich And Powerful Always Win"

Submitted by Eric Peters, CIO of One River Asset Management

Hope all goes well… Dusted off an anecdote from 2015 on what led to today’s growing backlash against inequality, injustice

Anecdote (Jan 2015):

"The rich and powerful always win; that’s the starting point," said the clear-eyed cynic, more interested in making mountains from molehills, than tilting at windmills.

"When upstarts periodically challenge their dominance, buying leveraged assets at wide credit spreads, central bankers throw the economy into recession, bankrupting new money, consolidating and preserving the existing power structure,” he continued. "That’s how capitalism mixed with democracy and rule of law works."

It ensures a positive correlation between competency and decision-making.

“The guys able to manage bigger bats are the ones swinging bigger bats; there’s probably no better way to do it.” What matters most is relative positioning within the wealth and power hierarchy, not absolute positioning. Which is why some crises that cleanse the system are by design, so devastating for everyone, including the powerful.

“Germany is in charge of Europe, and what do they want?” he asked, rhetorically. “They want every country on a DIP loan forever.” The last thing Germany wants is for their southern neighbors and France to pay off their debts.

“They want contractualized slavery, no different from what Hong Kong Chinese want from their Filipino maids.” But how about Germany’s acceptance of quantitative easing? “You hold off and give as little as you can,” he explained. “But giving as little as you can is different from giving nothing at all.” For all the excitement surrounding Draghi’s open-ended announcement this week, he’ll buy $1-$2trln of assets in an $80trln asset economy.

It solves no problems; buying time, while simultaneously relieving politicians of the imperative to make hard choices. Plus, with no real growth, or prospect of healthy returns on real investment, companies will now simply pay down existing debt.

“The Germans understand that even slaves need beds, and when they’re sick, you must let them go see the doctor.”