I have been reading up a lot recently about Krondatieff cycles and the like and these 16-18 year Bull and Bear cycles. I am off the opinion that these are as charactersitic of societies as greed, stupidity, charity, and selflessness.
Yes.. I've been reading a few articles on that theory as well. And there may be some merit to it. But it also might be one of those "stopped clocks being right twice a day" kind of theories where people make broad sweeping judgements and ignore the multitude of influences that might have contributed to past economic depressions.
I'm not a pure capitalist, nor am I a socialist. I'm a pragmatist who believes an economy does not revolve around asset bubbles or bursts, but around consumers having the means to meet their three major economic needs, food, shelter, and transportation (followed by communications and entertainment).
In any individuals life, those 3(+2) requirements must be met to ensure that an economy can survive the ebbs and flows of the more speculative and luxorious elements of the economy, as well as maintaining political stability. Any money invested in the stock market consists of surplus cash or "economic gravy", since stocks have no inherent value as a product or good. It's the physical economy that must be preserved.
I much prefer that those 3 needs are met through the private market, even with it's ups and downs, but if need be, the government must step in and create the conditions where confidence is restored and a tax base maintain, through deficit spending, if necessary. After all, there must be political stability before the conditions for economic stability can exist. And political stability depends upon J6P having a job... any job..
If he has that, then he can think about saving, or putting some cash in a 401K, buying a house.. etc. And that foundation of the economy seems alright given the unemployment rate numbers we saw this morning.
Back to the Krondatieff cycles, I read somewhere that AG possesses the belief (hubris?) that his strategy of massive rate cuts and added liquidity can mitigate the effects of the "winter" stage, potentially even preventing it altogether. I don't know if that's where we're at, but if one anecdotally looks at 1929 and what followed thereafter, sure there is a case for making a comparison to current events.
But I also know that there were many mistakes made in monetary and fiscal policy following 1929, that are NOT being made today. We're taking our lumps, writing off bad debt and not keeping it on the books nearly to the extent that Japan has. We have "easy" money which boosts confidence and keeps banks lending to credit worthy clients.
If, however, the US follows Japan's example and starts building concrete beaches (no joke) to keep the economy going, then I think (environmental considerations not withstanding) it would be time to say "sayonara".
I hardly believe that will be necessary. Lord knows we have fallen desperately behind on maintain much of our infrastructure. Nor have we spent the money investing in creating energy self-sufficiency (which would limit our exposure to middle east turmoil).
Btw, Bill Gross just put out a call that the Dow will be heading for 5,000 and the SPX to 650...
He must be looking at the same charts that I am.... :0)
Also, I've never been known as a gold bug, but I have to admit that the XAU has been performing well in this environment and it would appear we have a inverted H&S formation being created on the monthly charts.
bigcharts.marketwatch.com
Hawk |
