“The entrepreneur’s profit is not to be seen as a reward for what he has done in the past but as the motivation for what he should do in the future” – Ludwig von Mises.
An Exploration of Time Preference
Delving into the intricate pathways of Austrian economics, we meet “time preference,” a nuanced guide through our financial journey. It gently nudges us at life’s various intersections, where we decide: seize the immediate or strategically await future boons? Low-time preference insinuates a subtle nod towards wise investments, quietly championing the seeds of future prosperity. Its counterpart, high-time preference, alluringly beckons towards the spontaneous joys in the present.
The Symbiotic Dance with Interest Rates
Interest rates and time preferences weave an intricate tapestry within the economy. A society leaning towards saving—patiently holding off immediate consumption—tends to encourage lower interest rates, fostering a milieu ripe for investments and innovation. Conversely, an inclination towards higher interest rates often reveals a societal bend towards immediate consumption, sketching an economic scenario that potentially sidesteps future stability for the allure of present indulgence.
Central Banks: A Disruptive Element?
Austrian economists posit that central banks may inadvertently muddy this natural signaling, manipulating interest rates and distorting the quiet dialogue between present action and future consequences. The silent interplay between interest rates and time preference thus constructs our economic narratives, quietly scripting the epochs of our fiscal tales, demanding our astute attention and reflection.
Let’s look at two extreme examples of each.
LOW TIME PREFERENCE: A Bold Leap into Clean Energy with Kam Ghaffarian
Meet Kam Ghaffarian, an American entrepreneur with roots in Iran, who sets a striking example by putting long-term gains above quick profits with his various startup companies.
He believes in investing with a vision for the future – known as a low-time preference investment approach.
In the 1990s, Kam started a company, SGT Technologies, that became NASA’s second-largest engineering service provider.
He calls himself the original “Space Cadet,” believing in the myriad benefits the human species can achieve by reaching out to space.
After selling that company, he has since started numerous companies, all focused on Space exploration. He works closely with NASA and Elon Musk’s SpaceX, providing the astronauts and other services via his Axiom Space company.
In 2009, focused on finding a carbon-free solution to the world’s energy problems, he created X-Energy, revolutionizing advanced nuclear energy to provide clean, affordable, and safe power. His journey involved pulling together a group of expert scientists from South Africa, aiming to continue a previously halted project named the Pebble Bed Modular Reactor.
The Creation of Xe-100: A Safer Energy Future
The result? X-energy developed the Xe-100, a nuclear reactor designed to be clean, safe, secure, affordable, and small.
The Xe-100 isn’t just a marvelous invention but a solid example of planning and investing with the future in mind. Ghaffarian’s leadership at X-Energy showcases a beautiful balance between making decisions today and investing wisely for the benefit of tomorrow.
This story encourages us to think about how we can make intelligent, future-focused decisions in our lives, blending the excitement of now with the promises of later.
HIGH TIME PREFERENCE: High Time Preference in Argentina’s Political Theatre: Massa’s Alluring yet Perilous Gesture
In the looming shadow of Argentina’s crucial fall election, the Economy Minister and Presidential candidate for the Incumbent “Peronist” party, Sergio Massa, decisively nullifies income taxes for substantial worker segments amidst daunting national challenges: a staggering 124% inflation rate, the Central Bank hiking interest rates to 133%, and a pervasive 40% poverty rate. This tactic, a brazen exhibit of high-time preference, prioritizes immediate electoral gains, potentially at the expense of future economic stability and recovery.
Javier Milei’s Ascendancy: Austrian Economics’ Potential Revival in Argentina
Amid this tumult of Argentine politics, the outsider Javier Milei emerges— an Austrian school economist, former soccer goalie, and Rolling Stones cover band singer. Currently leading in the polls, with only weeks to go, he introduces Austrian Economic principles into Argentina’s heated political dialogue, crafting an intricate and unanticipated narrative.
His adherence to lower time preference – prioritizing fiscal surpluses versus deficit spending, prolonged financial stability over fleeting gains – punctuates his criticisms of the collapsing peso and his belief in the central bank’s complicity.
Furthermore, his robust advocacy for dollarizing the economy unveils a stark divergence from Argentina’s conventional fiscal approaches, presenting a philosophical and practical alternative to the electorate.
Contrasting Economic Philosophies: Milei’s Vision of Growth
As Argentina perches on the cusp of a critical election, the world observes, recognizing the potential global repercussions that a victory for Javier Milei, a genuine, outspoken Austrian economist, could generate. The dichotomy between immediate fiscal relief and long-term economic stability is starkly presented in this electoral choice, symbolizing a broader contention between high and low time preferences.
Milei, drawing remarkable support from Argentina’s young and economically disadvantaged populations, champions a shift toward stability and sustainable growth, which, if embraced, could send a powerful message beyond Argentina’s borders, impacting global economic narratives and investment perspectives in our post-pandemic world.
Client Advisory: Navigating Your Investments Amidst Economic Tides
Leveraging insights from global shifts and entrepreneurs like Kam Ghaffarian, BlueBird Advisory seeks to skillfully navigate your investment path, ensuring alignment with prospective growth opportunities while prioritizing your long-term financial prosperity amidst the ever-evolving economic scenarios around the world.
Market Highlights of the 3rd Quarter 2023:
US Inflation continues its decline, remaining around 3%, down from 9% a year ago. – Bullish
$USD The US Dollar rose sharply in August and September, reflecting higher rates and better economic growth, but this reduced global liquidity, putting downward pressure on stocks and bonds.
Stock market flat. – After a strong July, markets gave most of it back in September.
Oil is up sharply, providing strength in many portfolios.
Bonds, especially government bonds, continued their historic three-year decline. These low prices and higher yields will probably bring in buyers over the next quarters. It’s been fifteen years since yields have been this attractive, or conversely, bond prices have been this cheap.
Gold Negative as Fed continues its hawkish tone.
Interest Rates – Federal Reserve pauses rate hikes in September but continues to warn of future hikes if necessary.
- The United States is experiencing a clear economic acceleration, driven by improved consumer sentiment, rising new orders, and a strong manufacturing labor market despite high mortgage rates.
- Trillions of new debts raised by the US treasury may push up interest rates after the June debt limit deal. Washington will need to address the rapid increase in the interest cost to fund federal services.
- Seasonal factors, cyclical growth trends, and the probable ending of interest rate hikes may provide favorable tailwinds for financial assets in the fourth quarter.
Enjoy the fall! Please reach out with questions or concerns.
Peter and Barb
Read the inaugural BlueBird Advisory Lookout Spring 2022 —“There are decades where nothing happens, and there are weeks where decades happen.”
The opinions, forecasts, and views expressed here are those of Peter Ruh/BlueBird Advisory and do not necessarily represent those of RFG Advisory, its employees, or its clients.
This material is for educational and informational purposes only. It is not investment, legal, or tax advice. Do not implement a new trading strategy without consulting your financial professional. All investments involve risk including loss of principal. Past performance of any security or strategy is no indication of future results or success.
Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Advisor. RFG Advisory and BlueBird Advisory are unaffiliated entities. No advisory services may be rendered by RFG Advisory unless a client agreement is in place.