Econmics and dismal science...
by, 29th-June-2009 at 03:21 PM (857 Views)
Here is a good write up on an interview. Worth a read as it has touched on many issues raised by many people in this forum.
While you are reading, keep this mind though... economists have this tendency to look back and then talked themselves into some kind of pessimistic lunatics that if you are not careful you might just be converted into one yourself. So, always remind yourself of this "danger" whilst you are seeking knowledge and wisdom from people who are brilliant in hindsight analyses.
Always remember the main objective of your quest of knowledge - it's supposed to provide you with an understanding that would allow you to develop an edge in your market venture be it trading or investing. Your activity time frame may be very different from theirs, as in this case, Dr. Hunt's point of view could very well mean 20 years, if not, many years before he would say with confidence of what has happened...
As an investor, you are not interested in what has happened, rather you are interested in what is happening now and what is likely to happen from now, with respect to what has happened in the recent past. It probably makes more sense and more profitable to you if you can look back, learn from the past and adapt that knowledge into some kind of wisdom or foresight that would allow you to develop a plan for your market venture - this, to me, is the primary reason why you bother to dabble into this dismal science.
Adaptability, flexibility, common sense and contrarian perception are some of the basic attributes I believe crucial to survive and to prosper from the market. The ability to spot a market weakness and to exploit what it has provided, is the primary goal of any market participant. It's the action that counts, the rest... are just words, as in this blog.
Here are the main points...
* The US is in a period of debt deflation that may take up to 15 to 20 years to normalise
* The S&P is at risk of some 'false dawns'
* There will be a major shift in US consumer behaviour as savings start to rise and people live more within their means
* He describes the US stimulus in its current form as a grab bag of political promises and says it may be doing even more damage
* Diversified equity portfolio models may not work in the debt deflation environment
Here are some random thoughts in reaction to the above main points:
1) if the global economy were to decouple, and the US economy has become less influential, does the above points still carry that much weight? In other words, would the global economy still this US-Centric?
2) if the US$ were to lose its hegemony, will what is happening in the USA still exerts that much impact to an economy such as Australia?
3) if the US$ were to be replaced with a "global currency" built on a basket of the current major currencies (EUR, US$, YEN, RMB for eg), would the US financial stability still play this crucial a role in the stability of the global financial system as well as the global economy?
4) with this major shift in the US consumer behaviour, is it time to consider the relevance of the argument of global economy's dependence of US consumer recovery? Is it time to move on?
5) saving, in general is deflationary, whilst the US economy may be going through a deflationary period, say up to 15 years (pick any number), what does that mean considering the monetary inflationary effect of the current QE exercise? Which will prevail? Deflation or inflation at the end?
6) more... like these which I generally find issues with them economists...
a) most economists' view are US-centric and they rely too much on hindsight which as usual is US-centric - but at this juncture, since the GFC, it is very clear with evidence that there's a break down in the US-centric, US-focussed global financial and economic system. The QE and the runaway printing of the US$ and the runaway deficits in the USA are both unprecedented - how could they relied what is in the past mainly and based on that observation to assume the future of without taking into consideration of what has changed?
The rise of China was never in the past equation. But they are now, esp considering their large holding of US debt.
The USA taking a QE move in such scale and scope has never happened before. The synchronised crash of both US+EU economies in this scope and scale is also quite unprecedented. Whilst other economies such as the Chinese' are showing growth and strength - they may yet proved to be the ultimate change agents to this US-centric world... this, I doubt has been taken into consideration by many economists.
How valid are their views if the Chinese influence in the US$, bonds, interest rate and international trades are totally left out of their considerations?
Is there a paradigm shift happening right before their eyes and they are not seeing it?
If there is a paradigm shift, if it is happening, then how much is this shift, I guess, is the key to the future, and possibly a whole lots of fortune awaiting those who can think of the box.