On Wall Street: Apocalypse how?
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Confused about what the future holds for the economy? So are financial markets.
Record gold prices and negative US Treasury yields are strange bedfellows, indicating general uneasiness but also conflicting bets on inflation or deflation.
As the great economist Woody Allen once put it: “More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly.”
Fear that one’s net worth might evaporate is, of course, no laughing matter. In spite of the fact that risk appetite has come roaring back, it is hard to reconcile resurgent optimism with the eventual fiscal and monetary hangover of the financial crisis.
Voices from beyond Wall Street who foresaw the debacle now range from mildly to wildly pessimistic. Nobody captures the confusion better than the satirical economic country and western singer Merle Hazard (geddit?) crooning about whether we face hyperinflation or deflation: “Will we become Zimbabwe or will we be Japan?”
Unprecedented growth in money supply will unleash higher inflation warns Bob Wiedemer, co-author of the recently published Aftershock, and of the prescient 2006 book America’s Bubble Economy.
Agreeing with him is Michael Panzner, who published Financial Armageddon just as the last boom peaked and followed it up with When Giants Fall: An Economic Roadmap for the End of the American Era.
In the opposite corner is well-known economist and pundit A. Gary Shilling, who was also appropriately bearish before the bust and now sees deflation ahead. Money supply growth and yawning deficits alone will not spark price increases before overly leveraged consumers rebuild their balance sheets and excess global production capacity is soaked up, he says. That may take another decade.
It is hard to be pessimistic in the face of a furious market rebound and harder still when the handful of prognosticators who came out of the crisis with their reputations enhanced cannot agree on what constitutes a haven.
Dr Shilling advises long-term government bonds while Messrs Wiedemer and Panzner would eschew them, preferring hard assets such as precious metals.
There are other authors predicting upheaval, some late to the party. The apparently flexible Harry S. Dent Jr’s latest tome, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History, released in January, was preceded by The Roaring 2000s: Building The Wealth And Lifestyle You Desire In The Greatest Boom In History, published in 1998. So long Dow 44,000!
Of course it is simpler to be pessimistic as a writer than as an insider. “There’s no upside to being bearish – it’s an occupational hazard both on Wall Street and in Washington,” says Mr Panzner, a stockbroker.
Those who took the risk such as David Rosenberg, Paul Kasriel, Meredith Whitney, Peter Boockvar, Albert Edwards, Jeremy Grantham, Nouriel Roubini and Andrew Smithers remain a pessimistic lot these days but take a less apocalyptic view than purveyors of disaster-lit.
While those already hoarding bullion or cash may not care for the latter, it is worth recalling popular tomes that spooked readers into unnecessary precautions in the past.
Two are 1981’s Survive and Win in the Inflationary Eighties, (recently re-issued) and Surviving the Great Depression of 1990, written after the 1987 stock market crash.
Then again, forewarned is forearmed, and Messrs Wiedemer, Panzner and Shilling are, by no stretch of the imagination, kooks.
“I think people were looking for someone with a long beard and a sign that says: ‘The end is near’ and were surprised to find someone from Wall Street,” says Mr Panzner.
There is no point in being a kneejerk contrarian, says Dr Shilling, who also got his start on Wall Street, but hewing to consensus adds little value. And, while being a pessimist might get one noticed, it is hardly pleasant.
“I’m by nature a very optimistic person,” says Mr Wiedemer. “In a way, I’d rather not be right. I’d support this bubble economy if I didn’t think it’d blow up.”
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