Currently there is a great debate within the financial media on the who’s right – who’s wrong, as both sides stare at a financial market that seems to go ever higher with every morning bell.
In actuality, it’s both, and neither. While I am being somewhat cheeky, I do believe I’m not that far off the mark. However, the consequences of this dilemma is where the broader argument is getting lost on far too many.
Currently the macro economy is being expressed via circumstances resulting from a myopic view of participation. i.e., The financial markets.
If one were to step back and look at the true macro view, one can clearly see they do not support the reasoning’s lauded by so many why stock indices are once again setting all time never before seen in the history of humanity highs.
The issue at hand is many of us are forgetting what drives “economic theory” It’s just that: theory.
We can look at clues within the construct of what one would expect to take place within a given set of parameters based on hard data to support some form of conclusion. e.g., When fewer people have jobs, they have less money to spend, hence the economy will suffer or slow causing a ripple effects within the financial markets where companies sales and profits will be reduced resulting in lower stock prices and valuations.
All simple stuff. Been true as long as the markets have existed. Until now.
All of those fundamental based principles have been annexed to what one solitary person will do – then say. That person was Ben Bernanke. Now it’s been codified via the markets recent reactions to Janet Yellen.
Ms. Yellen equals more of the same: Back up the truck because everything’s on sale when you’re buying it with “free money.” And that my friends is one fact that will lay waste to centuries of market fundamentals let alone theories.
What is a Bull or Bear today? Before the financial collapse of 2008 it was pretty clear. In basic parlance Bulls stampeded their way to ever higher valuations at times turning a blind eye to basic fundamentals (i.e., valuations – shmaluations: let’s run!) as to push higher, to then find themselves running straight into the waiting claws of Bears willing and eager to remind them that fundamentals do matter. i.e., Bring on the bbq!
That scenario has basically been sidestepped. Today, with all the liquidity still sloshing around within the markets, Bulls have had a never before seen ability to negate the inevitable running off a cliff: They can now build ramps and overpasses on the fly. Paid for of course via the QE credit card. (Gives a whole new meaning to what’s in one’s wallet wouldn’t you say?)
Right vs wrong has also been thrown on its proverbial head. With the advent of such monetary manipulation it’s very hard to think rationally about what one believes should take place when fundamental principles are no longer even contemplated – let alone have relevance.
Two names come to mind that clarify why I believe the “right vs wrong” argument is also morphing into something I find rather dangerous, and for the casual observer possibly even more so. James Grant, and Mark Faber.
James Grant founder of Grant’s Interest Rate Observer® has been arguing monetary policies and its effects for decades. There isn’t a more cogent and articulate person professing what implications many of the policies taking place may have on the economy as a whole. Yet, one can make the argument he’s been wrong. However, is he?
Personally I have great respect for his work, views, and insights. I believe the timing of many of the arguments is what has been adulterated by the Federal Reserves actions. Not the eventual outcome. Although, yet again, no one knows, for the fundamentals have been wiped aside.
We could very well find ourselves living through some version of a groundhog day reenactment such as when Nixon took us off the gold standard.
Again, centuries if not millennia of fundamental sound money policies were laid bare. Everything we thought we knew or understood was turned on its head. Arguments based on fundamentals that had more in line with 1+1=2 let alone the 1+1= (whatever you like) we have today never materialized. Again I must ask: Who was right and who was wrong? Answer – we just don’t know. Yet.
We may (for many of us) never know within our lifetimes. It is a very disconcerting premise for anyone thinking about how or where one is to build or expand a business. The implications of making the wrong decision can be devastating to far more than the original risk taker. Although many can’t see past the headline (or teleprompter) of “another new record high!” So of course they all believe: “You should build it, for they will come! Just look at these markets!” I wish it worked that way – but it doesn’t.
As noted above the other person that came to my mind was Marc Faber, editor and publisher of the Gloom Boom & Doom Report™. In what is once again increasingly apparent is the sheer contempt by many of the financial television media as to portray or paint into a box anyone not doe eyed by the siren call of “Don’t fight the Fed!”
As far as they’re concerned, if you suggest anything other than buying equities, you just don’t get it. You’re some type of curmudgeon who just doesn’t understand or “believe” what they do. i.e., “The Fed’s got your back!”
In great form Mr. Faber takes issue with the ever-increasing spin as to shun fundamentally based thinking. You can argue against it if you wish, that’s always fair game. But when the so-called “smart crowd” display publicly their dismissive attitude with underlying tones of mockery: arguing right or wrong seems futile within this environment. Let alone trying to prove it.
Now (in my view) the only way to look at these markets is with an eye towards safety. And the term “safety” is going to mean many things to an even greater amount of people.
In May of 2010 when all this “new reality” took hold in earnest with then Chair Ben Bernanke’s (to some infamous) Jackson Hole speech where he basically signaled a QE4eva styled approach to monetary policies and intervention, the markets never looked back.
The real issue that brought about more reasons for concern than many will admit is both current business owners as well as future entrepreneurs began receiving more than mixed signals. Not only were some mixed but far more were indecipherable.
Indecipherable for all intents and purposes might as well mean “sit on your hands” in the business world. It’s hard to make moves in business when you don’t know or can’t tell what your cost of anything will be. Let alone if your potential customers will have the money to buy it.
Reasoning argued by many paraded across the media point to only one thing as proof why “one shouldn’t be worried” They keep pointing to the ever-increasing higher market print. I sometimes wonder if they look at the debt clock with the same doe eyed reverence, but I digress.
Owning gold as some form of insurance policy is looked upon as foolish. Arguments made that if one was to have 10, 20, 30%, or more in precious metal as compared to today’s stocks: well you’re missing out on all the gains that money could have made. So obviously, you must not be that well-informed and more.
Yet, would one of them do the same in earnest cancelling their own insurance policies of any and all types and “get in the game” with those proceeds? Hardly. They would just brush you off as “nuts” or “just crazy talk.”
However, based on today’s funimentals that’s exactly what one should do. After all, who needs insurance when ObamaCare’s got your back?
The argument is not that far removed or differing in my view. Yet, again, who is to say who’ll be right or wrong in the end in this scenario also.
We think we know, we believe we can see, but so far, arguments parallel the same results as the markets: Some are right, some are wrong.
Those who make brilliant arguments for, or against, have at times been shown correct. Those who have absolutely no understanding and make idiotic assumptions so far they too – have not been disproved. Such is this “new normal” many of us find ourselves within. Again, we’ll just have to take a seat while we wait and see. Only time is going to solve this debate.
Just to show how everything you thought you knew has changed in just these past five years, here’s something I also find a little ironic.
While all this great debating of “equal rights, equal pay” et al is going on. The media are all a buzz and focused on another woman who professes there’s some “glass ceiling,” while at the same time is debating whether or not to run for president.
All the while simultaneously, a rather innocuous looking, seemingly mild-mannered woman is more or less single handily controlling the finances of the world with the ability to lay waste another nations wealth. Or, can bring forth gardens of Eden seemingly upon command just by saying, “for a considerable period of time.”
This is real power, and quite possibly the “true” new leader of the free world.
And I don’t think she even has a book out.
© 2014 Mark St.Cyr