Recession? No, It's a D-process, and It Will Be Long (online.barrons.com) |
Recession? No, It's a D-process, and It Will Be Long (online.barrons.com) |
My prediction is that the rate at which businesses change/modify/adapt (especially in the financial sector) will be readily reflected in the information that is spread through multiple channels, resulting in a compression of the time frames of the current "D-process".
Don't worry, the entire financial world ignored this rule as well (which is precisely why I think this is likely to be a long downturn - rebuilding financial infrastructure is a long process involving lots of time and social work; you can't simply legislate it into being).
I want to emphasize that what I'm stating is that in the past, when critical changes took place, it would be some time before all of the information/knowledge of those changes propagated to everybody and this had an impact on the economic cycle (how long or short they were). In today's "Internet Age", the time it takes for changes to propagate is going to be reduced dramatically.
I should add that a direct consequence (and this is purely hypothetical but not unreasonable to include) is that the volatility of the economic climate will increase with the availability of information.
The idea seems valid, but I paused to think why it didn't jive with the employment recovery rate plots.
http://www.williampolley.com/blog/archives/2009/02/employmen...
It seems the most straightforward explanation is... actually, I can't think of one, but I have three factors that seemingly count against your theory. 1. increasing income and purchasing power disparity. 2. changing attitudes and/or culture; then we can expect a new kind of "equilibrium curve" due to new consumer behavior. 3. age of previous buyer's generation (unsure about this one).
Also, speed of information is unbalanced with speed of physical processes; you can make an order and track a package of food with millisecond accuracy, but you will still remain hungry for as long as the delivery truck can drive.
Someone more knowledgeable, say something if you will.
He makes the point that deflation is a serious concern so the Fed will devalue and gold will be a great investment. But then he says that the devaluation will barely produce a single digit rate of inflation and stocks will be a great buy.
So which is it, low inflation and cheap stocks, or gold?
Gold doesn't pay dividends so the only way you make a profit is by it going up, or you simply preserve your wealth when there's inflation.
But why would you hide in gold with low single digit inflation?
http://www.ft.com/cms/s/0/774c0920-fd1d-11dd-a103-000077b076...
when you have huge negative savings for many many years that is unsustainable. we are now correcting.
Gold is like any other commodity: its price behaves according to supply and demand. When there's massive economic uncertainty, people demand it, so its price shoots up. A bubble, in other words. Economic uncertainty includes deflation, panic, and social unrest as well as inflation.
I prefer not to speculate so if deflation or low inflation are on the horizon I'd rather invest in something that's cheap and pays dividends, and incidentally, is taxed at a lower rate then commodities.
Between now and sometime possibly about a year from now, stocks are likely to go down much further than they already have. So stocks are a bad move right now. Reasons behind this are lack of credit due to all the deleveraging and lack of demand due to consumers scaling back their spending due to also being overextended and seeing their home and portfolio prices dropping as far as they already have. Home prices will continue to drop as well, for a multitude of reasons, one being that tons of people can't afford their payments--hence, we have too many homes worth too much.
The reason gold will hold up or go up, in his view, despite lack of extreme inflation, from what I can tell, is this: asset prices (stocks and homevalues) everywhere are falling. But the money's still floating around. This would normally lead to big deflation. But since governments are all going to be pumping cash into their economies by printing money, they'll offset the deflation and we'll end up about even. In a sense it's inflation--money will be valued less; but so will most assets such as homes and stocks. One big asset that won't be valued less is gold. As more people start seeing it this way, gold will go up and up.
I'd guess that around the time he's forecasting a stock trough is when he'd recommend moving a bunch of your portfolio back from gold into stocks.
Also see "livelock".
