Hi Grace, Let us tally up the different strands of thought in the real and cyber worlds; weave the thread of logic through them; and see what danger may be facing us, regardless of the rise of the indices since 1982, which BTW is not relevant to most investors directly because while they may have enjoyed a net gain due to their active work, passive savings, and opportunistic share trading (we all did), very few folks actually rode on the strength of the rising indices to a position of wealth. We as investors simply are not that good, and we as speculators have so far been lucky, but only so far. Should we allow the 1982-to-now-is-just-fine logic to stand, namely that all is fine because we all are that much wealthier than we were in 1982, than I suppose the same style of thinking can be applied to the period 1929 to 2001.
Ok, enough preambles and let us start weaving:
(a) Productivity gain has been limited entirely to the information industries (PC, software, telecommunications, and chips); but
(b) Productivity gain is turning out to be a science fiction.
(c) Supposed productivity gain heavily impacted GDP growth in that it resulted in alleged but fictitious above-normal GDP growth; and
(d) Alleged but fictitious above-normal GDP growth is not sustainable, and is in fact altogether a play on the trusting mind, soon to be consigned to the trash heap of Greenspanomics;
(e) Productivity gain supposedly fueled alleged but fictitious above-normal GDP growth and kept real world inflation under apparent control; and
(f) Meanwhile, high reported GDP growth coupled with low apparent inflation attracted offshore capital seeking rumored outstanding opportunity of further sustainable gains on investment; and
(g) Supposedly, sustained and above-normal high GDP growth fueled by offshore capital will further positively impact the budget surplus, flow through to reduced borrowing cost; and
(h) Continuing surplus portends good tidings for the baby boomers as they spend their way into retirement, which in turn fuels the economy due to strong consumer spending.
I am not feeling comfortable with all this magic, just magic, and as it will turn out, only magic.
There are a few problems, the first being we had a bit of financial asset inflation of some large dimensions; and
Real world inflation was kept in check by way of the above mentioned strong USD currency due to capital flow rushing in to partake in the financial asset inflation; and
There is no budget surplus in any case, as it was a figment of the accountants’ imagination; but
The baby boomers are indisputably closer to desired retirement time, though not to desired retirement status, and in any case should soon be forced to work longer still hours, spend sharply less, or sell off what remains of his equity to as yet unidentified buyers of last resort.
What then is to follow can only be described in brief as anxiety, fear, dawning realization, anguish, regret, blood curdling cries, silence, and what you hate most, whining. After that, we will be blessed with rebirth of diligence, thrift, family values, and truth.
Well, anyhow, this is one possible future.
I am continuing to increase the size of my speculation (yes, I am gradually leaving the cautious hedge sphere and entering the speculation arena) against equity, against the USD, and against the CNBC alleged reality.
Maurice may be happy to learn that I should (I will confirm after I have done so) be taking a speculative long position in Global Crossing, given that the screaming cries in that bloodied arena is hoarse. See, I am not all doom and gloom, and hardly ever whine :0)
Chugs, Jay |
