Geckoism
This month's feature article is from Forbes, citing a number of similiarities between current economic and market conditions and the mid 1980's....
--"Real gross domestic product… grew at a seasonally adjusted annual rate of 1.3% in the first three months of the year. That was down sharply from growth of 2.5% in the fourth quarter of 2006 and was the slowest rate of growth since the first quarter of 2003." The Wall Street Journal, April 28, 2007.
--"The U.S. economy, battered by foreign competition, grew at a sluggish 0.7% annual rate during the first three months of the year ... The gross national product, the broadest measure of the country's economic health, has not expanded at such a low rate since the end of the 1981-1982 recession." Associated Press, May 21, 1985.
Makes for an interesting read. The more I contemplate the prevailing economic conditions the more I believe the root cause lies with: excess liquidity driven by excess US dollar production (read Treasuries) driven by irresponsible US economic policy and unsustainable deficits. Markets usually have self corrective mechanisms however the mercantilist policies of China and Japan in particular are ensuring that the US dollar is not being appropriately priced.
Ultimately a correction to the global liquidity glut will be associated with a re-rating of the US dollar probably associated with a significant decline in value and a sharp rise in US, and then, global interest rates. The 'valuation crisis' that this article describes will lead to the pricking of the world's innumerable asset bubbles accelerating the decline in liquidity.
However, rather than this correction being a bull market hiccup as suggested, it will be the beginning of an extended bear market and so the more accurate comparison remains the late 20's. Why I take this position is influenced both by a view on the economic fundamentals we are currently seeing and an intergration with generation theory which would predict a crisis of this scale. To explore this link yourself I would recommend familiarising yourself with Howe and Strauss's conceptual framework at www.fourthturning.com
--"Real gross domestic product… grew at a seasonally adjusted annual rate of 1.3% in the first three months of the year. That was down sharply from growth of 2.5% in the fourth quarter of 2006 and was the slowest rate of growth since the first quarter of 2003." The Wall Street Journal, April 28, 2007.
--"The U.S. economy, battered by foreign competition, grew at a sluggish 0.7% annual rate during the first three months of the year ... The gross national product, the broadest measure of the country's economic health, has not expanded at such a low rate since the end of the 1981-1982 recession." Associated Press, May 21, 1985.
Makes for an interesting read. The more I contemplate the prevailing economic conditions the more I believe the root cause lies with: excess liquidity driven by excess US dollar production (read Treasuries) driven by irresponsible US economic policy and unsustainable deficits. Markets usually have self corrective mechanisms however the mercantilist policies of China and Japan in particular are ensuring that the US dollar is not being appropriately priced.
Ultimately a correction to the global liquidity glut will be associated with a re-rating of the US dollar probably associated with a significant decline in value and a sharp rise in US, and then, global interest rates. The 'valuation crisis' that this article describes will lead to the pricking of the world's innumerable asset bubbles accelerating the decline in liquidity.
However, rather than this correction being a bull market hiccup as suggested, it will be the beginning of an extended bear market and so the more accurate comparison remains the late 20's. Why I take this position is influenced both by a view on the economic fundamentals we are currently seeing and an intergration with generation theory which would predict a crisis of this scale. To explore this link yourself I would recommend familiarising yourself with Howe and Strauss's conceptual framework at www.fourthturning.com
posted by Peter at 1:56 pm
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