Well, yes, the mutual fund flows both reflect sentiment and also cause short-term movements in the markets. The money supply, though, is surely important for what happens over a period of months. Easy money lets everyone live more and more on cheap debt while putting money into equities. Same old story. The Fed keeps looking at commodities prices and prices for manufactured goods and saying "no inflation." Meantime equities inflate to levels never seen, and in pockets around the country real-estate speculation has taken off again, most notably around San Francisco (I understand). As so many of us keep saying, all very reminiscent of the later 1920s. The difference now is that there's no gold standard to kick in and really wreck the banks, but there is plenty of room for a major equity market collapse. I used to say 40%-50%, but I now think it could reach past 60% when it happens. People who lose half their money refuse to touch stocks for a long time; those who come in on a 25% decline seeking "bargains" get back out towards the ultimate bottom.
Of course, all sorts of things are different now from what they were in 1929.
But the entire course of human history, whatever the current state of politics, economics, technology may be, consists of good times and bad times--the good times growing out of the disciplines developed during bad times, and the bad times often following on the excesses and lack of caution during the good times.
Right now in the U. S. jobs are easy to come by and a lot of people are employed who are not very efficient at their jobs. Three days ago a mini-tornado went through near us and tore a limb off a tree that pulled our power line away from the house. After two days, a power company truck pulled up, and the three guys in it spent maybe 40 minutes concluding that their ladder was too short for the job. Then they took an hour break. Then another truck arrived with three more workers, plus a trailer with a ditching machine on the back. After a while a third crew arrived. They all stood around for a while discussing how to reattach the power line. The meter box was also pulled off the wall. They spent about an hour getting line up under the eves. Then they went away. The meter box was still not reattached to the wall. So three work groups and three trucks and two trailers and assorted other equipment had been tied up for several hours. After they left I found some lead anchors and was getting ready to reattach the meter box, but then one of the crews came back and "took over." They borrowed wrenches and a masonry bit from me, and then ruined the bit by trying to drill directly into granite, despite my quiet objections. They damaged the hole I had made with a star drill, so that it would no longer hold a lead anchor. They finally got one anchor semi-attached and then left it at that. They did give me a brand new drill bit and did not take away any of my tools.
I suppose it is better to have these bunglers trying to do something than to have them drawing unemployment. I estimate that this relatively simple repair cost the power company more than $1,500, though. No one ever speaks of "overemployment," but I think that's what we have. I would judge that the minute profit margins start to slip, a lot of unproductive workers will be quickly cut, and there will be a severe recession. |
