Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep, on average.
        -- Howard Marks, Oaktree (quoted in Barron's)

Real-world distributions are a killer.

You can't tell your G20 players without a program, so, with this weekend's G20 talks underway, here are two graphics laying them out, including their economic conditions. I know I couldn't have come close to having naming 'em all.

I'm trying hard to read the entire G-20 communique -– what leaders propose to do so that global markets stop re-enacting Mothra vs. Godzilla, except with capitalism playing the part of a small island near Japan -- and it's taking years off my life while destroying my corneas. Insofar as I can tell, the shorter version is contained in these four bullet points:

• It's not you, it's me.
• If you change, I might love you more, but don't count on it.
• The IMF sucks.
• "Never" is open. How does that work for you?

And you knew this was coming, so here's the word cloud for the whole thing in its straight-outta-Brussels diplomatic-speak vagueness.

[via Wordle]

I’ve written about this before, but it’s worth noticing that with wildfires raging across southern California today foreclosure-heavy areas are being hit harder than most. Case in point, Yorba Linda, California, where a fire has burned dozens of homes already, and is being pushed by Santa Ana winds further southwest into Los Angeles County.

One of the main areas that is wildfire-struck is just west of the intersection of the Chino and Riverside freeways. The area is relatively recent construction, and it is, unsurprisingly, riddled with foreclosures and bank-owned properties. Check the following map, and note that the fires struck this area from the northeast and swept southwest.

[via RealtyTrac]

In general, we can expect wildfires to hit subprime- and foreclosure-struck areas more heavily than others in California. These area were built in what is euphemistically called the “wildland interface”, which is a multisyllabic way of saying near fire-prone forests and chaparral.

Lovely sunset as I’m heading out for endless hours of pressurized tin can occupancy (i.e. airline travel). Check the following shot from a mountain top not far from my house today. The sun is blooming as it descends into the ocean, like a massive fire being suddenly doused.

Leave the fire ashes; what survives is gold
       -- Robert Browning, Rabbi Ben Ezra

It’s the “g”-word. It’s the word that everyone almost says, and then doesn’t, because saying it can make you sound like a little like a loon, or maybe more like a combination of a train spotter and a conspiracy theorist, with an Austrian economics overlay for luck. It’s “gold”, of course.

Of late, however, gold has actually provoked some thoughtful discussion, at least insofar as imagining what might be different in the current crisis if modern currencies, especially the dollar, were tied to gold (or something like it) in a fixed ratio. For a thoughtful example, check the following sent to me today by the folks at QB Partners. Agree or disagree, at least the case will have been made.

…the notion of multiple subjective global monetary policies managed by unitary policy makers seems anachronistic. Fiat currencies allow sovereign governments and their central banks to issue as much paper currency as they wish, as long as merchants, consumers and trading partners are willing to accept that paper in return for goods, services and assets. Because various nations have different growth rates, as well as differing social, economic and political agendas, it follows that subjective domestic monetary policies and the absolute and relative purchasing powers of their attendant currencies are highly unstable and, in many instances, inordinately unfair.

Maybe the US dollar – or whatever form of money the world chooses to have as its reserve currency in the twenty-first century – should revert back to the gold standard? A gold standard is a quaint idea inasmuch as the theory of relativity is a quaint idea. Nothing has changed in the current global economic environment that argues against the legitimacy, flexibility and practicality of re-adopting a currency anchor – not the size, divergent interests or sophistication of global economies, banking systems and capital markets.

The common fear that banking systems could extend only limited credit under a gold regime is fallacious. There is plenty of gold – at the right gold price – to peg paper money to it. As long as fractional reserve banking systems exist, money and credit growth would be limited only by natural economic forces – not by rigid formulae. Neither is re-anchoring currencies to gold a partisan issue, as is so often thought. The healthy tension surrounding free market control and the distribution of wealth would remain in the political sphere, to be argued by liberals and conservatives.

Within all nations, it is the peoples’ collective wealth - earned from innovation, natural resources, labor and productivity - that their central banks attempt to optimize. Central banks throughout history have spotty records of doing this. Politicians across the political spectrum are equally critical of the limitations of a subjective central banking system capable of promoting violent economic booms and busts, which may threaten the very viability of their nation. The question of fairness within an economy – the manner in which collective wealth is concentrated, distributed or re-distributed - is a separate matter with a different pathology from employing a gold peg.

Gold-backed currencies require fiscal and trade discipline among all constituent economies – not necessarily rigid mandated controls. A nation that runs a persistent trade deficit, for example, would find gold leaving its vaults for those of net-exporting nations. This would prompt one of two responses by the indulgent nation: 1) tighten domestic monetary policy which, all else equal, would lessen demand for imports and lead to a rebalancing of accounts or, 2) adjust its fixed exchange rate downward, which would hinder its relative terms of trade with other nations (the overly indulgent nation’s exports would become relatively cheaper while goods it had been importing would become more expensive). These disciplinary dynamics work naturally to rebalance trade and capital flows and to encourage domestic economic sustainability and fairness among trading partners. This is timeless theory (straight from Adam Smith) and would be very practical today.

Read the whole thing here.

Of course, nothing is truly new under the economic sun, as this piece from Time back in 1979 makes clear. Read it for more context on gold’s fashionability in crises.

I really liked this quote from Howard Marks in today’s Barron’s:

One of the great lessons [of investing] is beware of platitudes, such as "There has never been a national decline in home prices." If you believe that there has never been a national decline in home prices and that there never could be, then you bid home prices up to levels that don't allow for the risk of widespread losses, because you concluded it could never happen. Then the fact that they are at those new high prices introduces, in itself, the risk of a national home-price decline.

So the actions of people relying on history change history, and that is what people lose track of.