Too much focus on the Armageddon Economy
The US Economy faces the Guillotine - when Newsweek predicts Armageddon to the masses, and the masses all believe in the upcoming Armageddon, then we're in a state of mass hysteria. In such an absolute state, only a contrarian can provide counterpoint and potentially profit from the unexpected.
Let's counter some of the accepted wisdom the mainstream media and the financial pundits have been spouting with some legitimate contrarian perspective.
The accepted wisdom: As the Fed drops interest rates, the dollar will crash
The contrarian view: According to Bloomberg, the dollar is primed to rise this year versus the Euro as the Fed's bold rate cuts will boost the US economy just as the European economy slows:
For the first time since 2003, investors are focused on relative growth prospects rather than absolute borrowing costs, according to Geoffrey Yu, a London-based strategist with UBS AG, the No. 2 trader. The steepest cuts by a Federal Reserve chairman in seven years will support economic growth in the U.S. as Europe slows, said BNP Paribas SA, the most accurate currency forecaster Bloomberg tracks. The dollar will gain at least 9 percent against the euro this year, UBS and BNP predict.The accepted doomsayer wisdom: As the US economy enters recession and inflation takes hold, it could propel the US into 1923 Weimar Germany - like hyperinflation death spiral when prices doubled every two days. Here are a few recent examples of such predictions from last week alone:
Lyndon LaRouche Jr., "Hyperinflation is Here!" February 1, 2008 - classic hyperinflation argument
Henry C K Liu, "The Road to Hyperinflation" January 26, 2008- here Mr. Liu points out that Fed or global Central Bank fixes don't solve the real problem - the rich, developed nations are simply overextended and inflation is inevitable.
Eric Janszen, “The Next Bubble: Priming the Markets for Tomorrow’s Big Crash,” Harper’s, February 2008
“Our economy is in serious trouble,” writes Eric Janszen in the cover story for the February Harper’s. “Both the production-consumption sector and the FIRE [finance, insurance and real estate] sector know that a debt-inflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.”Janszen posits that the 21st Century economy is being founded on bubbles, with the tech bubble popping in 2000 and real estate in 2006. Bubbles keep Wall Street employed, so he predicts the next bubble will be in alternative fuels and energy.
The contrarian view: Bloomberg News, Treasury 30-Year Gain Belies Doubts With Lowest Yield", February 3, 2008
By almost any measure, the 30-year Treasury bond has been irresistible. The security returned 16 percent since June, the most of any U.S. government bill, note or bond. Rising demand pushed its yield last month to the lowest since regular sales of the debt began in 1977.The doomsayers also say buying T-bonds is reckless due to potential losses from the hyperinflation and crashing dollar to come when T-bonds will no longer be considered safe havens. This Bloomberg article proposes an outcome the opposite of the Armageddon scenario but with the same result - it's probably not wise to be long T-bonds for the long term.
Yet a growing number of investors say buying the long bond is a surefire way to lose money, even as the Federal Reserve cuts interest rates and Treasuries remain a haven from subprime- mortgage losses and a slowing economy.
If the rate cuts and the stimulus package work, and the economy starts to stabilize or speed up again, you'll see a rising interest-rate environment on the long end'' of the so- called yield curve, said Anne Ruff, a portfolio manager at Rydex Investments in Rockville, MarylandDon't mean to sound Polyannish... I also see some heavy fallout with new layers of the credit crunch coming... but the mainstream media's obsession with bad economic news requires counterbalance. Frankly, it's celebrity human nature to predict Armageddon; doomsayers get far more attention over other pundits predicting milder outcomes, and if they are right, they gain notoriety and fame, if wrong, nobody notices.
And here's one for the rose colored glasses set: Bullish investors should be rooting for the NY Giants
The average return of the S&P 500 following the three Patriots wins (2002, 2004, and 2005) is a decline of 3.6%. Following Giants wins (1987 and 1991), the average return was a gain of 7.8%.I've lived most of my life in NYC and SF, and had the same reaction to that back bending Tyree catch as I did with Dwight Clark's "The Catch" in the Niner's 1981 NFC Championship game. Awesome, Giants!
I think part of the reason the media exaggerates is to make the president look bad. Not that he needs any help!
Unemployment is at 4.9%. GDP barely grew in the fourth quarter, but it did grow. The economy is far from rosy, but Armageddon, it isn't.
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Great article...I always enjoy reading your posts regularly!
Wonderful to hear someone besides myself speak clearly about the media...those oftentimes Horrible doomsdayers!
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I got your story on positiveonrealestate.com. Nice post.
Now on the game.
I must say that the Pats got some really bad calls two that come to mind.
The long throw right to the side line in the 1st qtr. was pushing off by the receiver. And the back bender catch I thought Eli was in the grasp. Any other game and he is down.
Give it up for the Giants D Line. They had the Oline of the Pats psyched out. 3 offsides is evidence. 18 knock downs on Brady. Noone wins with those stats. The Giants D should have gotten the MVP.
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As a long time reader, and friend of Eric Janszen's, I nearly fell out of my chair at the thought he now represented the mainstream view. Eric helped me know to sell nearly 30 homes I had at the peak, buy gold well below its current levels, and gain far more understanding of the economy than I had before I started reading his articles 5 years ago. All of which were very contrarian at the time. If he is becoming more mainstream it is only because he has an amazing track record of being right.
Also note that he is absolutely not a "doomsayer", and he does not think a hyperinflation is likely. For a better take on his view, see this recent post at his website: http://www.itulip.com/forums/showthread.php?p=26304#post26304
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Sean, great article by Janszen. I had assumed from the Harper Magazine review of his book that he was a doomsayer. His work on iTulip clearly explains the distinctions between the Deflationistas and the Hyperinflationistas, two classes of doomers. I learned a lot.
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