I am not an economist.
So I will probably put my foot in my mouth.
By too much capacity I meant that certain sectors were geared up for a 5-8% GDP growth world. Effectively people took Y2K growth and just drew a line. Whether this was caused by the likes of the semi companies building plants, or every venture capital company launching 3 or so telcos, the ability to supply goods and services in these sectors sure outstrips the demand.
That is my take on the (tech) bubble.
The general stock bubble ($SPX:1994-2000) is actually a "bubble of stocks" - by this I mean that there are way too many shares out there. Limited float IPOs, un-float weighted indices, share options all of these caused people to chase stock higher, and more was issued to meet demand in the form of IPOs. Comapnies even borrowed money to buy shares back, for stock option dilution.
There is a massive overhang in the float of stock.
About killing the companies. All I am saying is that do you want a situation were every company in a sector loses money as no-one has any pricing power. As a consumer - hell yeh, I do!
The only catch is who is keeping the unprofitable companies on life support. The answer, here in Japan, is the taxpayer/saver as they are effectively long bonds to keep long-term rates low for the zombie companies. If a monopoly arises, it will be due to the fact that the few competent companies were dragged under as they could not get profitable quickly enough.
The answer is to have shed loads of cash and not pay taxes -LOL- for the deflation period. If you can do this then I suppose you would want the deflation to last forever.
I am not in this position - which is good for all stages of the economy
I am a firm believer that these cyclical effects (boom and bust) are beyond the power of institutions and individuals to control being the product of crowd psychology.
Basic human (crowd) psychology is that we enjoy more than we should (thus ensuring a bigger bust), and refuse to take our pain quickly (thus ensuring a longer bust).
I am watching my extreme scenario play out slowly. I am actually surprised but the extreme scenario - the deflation/depression - is still a highly contrary opinion. I am not betting that it will happen, but everywhere I read all I read is hope that things are/will be improving. There is no persistent evidence that things are heading in this positive direction.
Long-term sentiment (economy 12 mths from now) appears bullish. It is only the technicians that are calling for $SPX=600-400.
With the current trend in equity and the economy that is equivalent to calling a bottom sometime soon. The trend is down, until it changes I will continue to fear the worst.
Long AU, ABX
-macavity |
