Friday, May 28, 2010

I Can See Clearly Now (Musical Tribute)

The year was 1973. What a year.

Click to enlarge.

Signs of Deflation You Might Not be Able to See Clearly

The Fed and the government quite effectively advertise their efforts to inflate the supply of money and credit. But deflationary forces, to most eyes, are invisible. I thought I would point some of them out.

Stock-market roller coaster is hard on the economy's stomach

Most worrisome is that the market mayhem is bringing back memories of fall 2008, when stocks plummeted as bank lending froze after the collapse of brokerage Lehman Bros.

Dollar's monthly string of gains longest in a decade

Dollar index makes biggest monthly gain since October 2008

I turned bearish in the summer of 2004. I remember walking my dog around a local lake. The sun is a powerful force. It had me questioning my bearishness. I had to remind myself that the sun was also out during The Great Depression though. It may not seem like it when we look back at the grainy black and white footage of that era, but it really was.

This post inspired by G.H. who referred to the first song in the comments. I really do wish I could see clearly now. Unfortunately, the future still looks cloudy to me. I just don't think we can borrow our way back to prosperity. I hope I am wrong.


GawainsGhost said...

Well, Mark, I think you can see pretty clearly. The problem is that like most people, myself included, you don't like what you see--it's scary. So it's best to hope that what you see is not real and that everything will work out.

What's happening is that a large number of conflicting factors is approaching a catastrophic event. There are the false assumptions, flawed models and failed theories that have dominated economics since the 1950s. (Thank you, U of Chicago! Why is it that the worst ideas always seem to come out of that school?) Then you have the rise of technology, particularly computers, satellites, and communication and transportation systems. And you have the increase in globalization, making economies the world over vastly more interconnected than they were before. There are many other factors as well, such as fiat currencies, highly leveraged banking sytems, public and private indebtedness, and on and on.

This is classic chaos theory. Small perturbations in the initial conditions cascade into large disruptions in the system as a whole. What happens in Greece no longer stays in Greece but impacts everywhere else.

If the Euro collapses, that is going to have a disastrous effect on China and the US, the whole globe. But it doesn't have to simply be a collapse of the Euro, any number of events could set off a change reaction that disrupts the entire system. It could be, say, a war in Korea, or an oil rig leak in the gulf. It could be another terrorist attack somewhere, anywhere. It could be the descent of Mexico into complete anarchy, which incidentally is happening as we speak. It could be anything, like the elections of incompetent leaders woefully unable to deal with the situation once it gets out of hand.

So I'm having a shot of whiskey with my morning coffee, before I have to get some actual work done.

I think there was a song to that effect, something like . . . "Don't worry, be happy."

Stagflationary Mark said...


Chaos Theory and oil don't mix well. Sigh.

Oil: $11 -> $145 -> $35 -> $80 -> ?

I thought $80 would be roughly the top in this cycle (gut feeling) but for all I know we're moving into the next cycle already.

Any number of factors could push oil in either direction from here, the worst being what is going on in the gulf. No, make that ANY gulf!