The Dilemma between the ethical and virtuous versus the pragmatic and opportunistic capitalistic System

Monthly Market Commentary: March 1, 2019

Professor Luigi G. Zingales thinks that, “The problem is not Amazon or New York. Foxconn received a similarly outrageous subsidy from the state of Wisconsin just a few months ago. The problem is a system that with the pretense of helping business destroys free markets.” Zingales describes in a detailed blog how capitalism and free markets should exist in a perfect world.
Tyler Cowen, an American economist, who writes the “Economic Scene” column for The New York Times, and who is also an opinion columnist at Bloomberg, believes that Amazon Didn’t Get Special Treatment From New York. Cohen believes that New York made an error in offering Amazon tax breaks, “if only because it looked bad. That led to the cancelling of the deal, and negative publicity for both the company and New York City. But if you think the deal was uniquely outrageous, you need to look more closely at how governments actually operate.”

The 18th century Irish statesman and philosopher Edmund Burke observed, “As People crushed by laws, have no hope but to evade power. If the laws are their enemies, they will be enemies to the law; and those who have much to hope for and nothing to lose will always be dangerous”.
In other words, Amazon was acting rationally and ‘merely’ exploiting some tax loopholes or taking advantage of subsidies, which it could obtain due to its economic size.

Given my negative view about the global economy, I expect the yield on the 10-year Treasury to drop to between 2% and 2.25%. However, I strongly doubt that yields will approach or revisit the 2016 low at 1.37%.

My concern about longer dated US Treasuries is this. Once it will become clear to the FED that the US economy is weakening rapidly (whenever that may be the case) the FED will reverse its policies and slash interest rates and launch QE4. At that time, short-term interest rates will decline without any doubt. However, what about long term interest rates? How long-term interest rates will react to further money printing (QE4) is uncertain. Maybe the bond market will not like further QE policies, which would likely also weaken the US dollar and boost fiscal deficits, as well as inflationary expectations.

For readers who agree with me that the US dollar could become highly vulnerable going forward, there are two obvious asset classes to consider: Precious Metals and Bitcoins.

I am pleased to enclose a report by my friend Frank Berlage (, CFO of Multilateral Partners Global Advisory Group L.L.C. In A Changing Stock Market? - Its All On the Margin Berlage discusses how US corporate profit margins are likely to come down and depress stock prices. When you read Berlage's comments remember the words of Warren Buffett that “Prices are sky-high for businesses possessing decent long-term prospects.”

Finally, concerning the discussion about the virtuous and the pragmatic capitalistic system we should remember the word of Federalist No. 62 who opined that,
“It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is today, can guess what it will be tomorrow.”

With kind regards   
Yours sincerely   
Marc Faber

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