I have a friend, who follows indian gurus around the country and world, says they are predicting a very bad time starting in September. I don’t know if this is economic or war related.
What would avert a recession? Another liquidity injection? But that is unlikely. We’ve had a global liquidity glut, and all central banks particpated in that, so all are unwinding and raising their interest rates.
Recessions are a natural cycle of the economy. They are necessary to cleanse excesses, even more necessary in economies no longer backed by gold. The longer we avoid having a recession, the worse the eventual one will be. Oceans have waves. They rise and fall. How can we keep a wave from rising? Our day has light and night. How can we avoid nightfall? It’s just a natural rhythm of things. The question is one of severity, and the severity of the recession is proportionate to the excesses which preceded it. That is why this next one will be huge. We had years of federal funds rate below inflation. Investor buying MBS from mortgages at 100% financing given to high risk borrowers without demanding any kind of risk premium. Crazy stuff. The derivates collapse potential is huge, but it is a thing I do not understand.
The masses think the economy is good because the read the headlines: low unemployment. They listen to Bush trump the success of his tax cuts, and that the budget deficit is less than projected. They think housing will stay flat for a yeaer and start rising again. I don’t know anyone outside this forum who understands what is going on now. Not one person. The masses are clueless. They don’t care about the economy or politics. How many people even care that we could be starting a major war in the middle East over the Israel matter?
We are happily ambivalent because life is still good. The tsunami is coming, but it is calm at the beach, and we are happily playing in the sun. You tell me a tsunami is coming, and I look at you puzzled, because the ocean is smooth and the sun is warm and the sand is soothing under my feet. Life is good.
Use this information to prepare. That puts you ahead of your competitors.
As Bugs said, if everyone rushed out at once, we would have a disorderly decline. I needed a bullish real estate view so I could sell my house and find a rental. I needed people to buy stocks so I could cash out mine. So the early bird wins. I have moral guilt over this, but I am living in a capitalistic society so I play the game.
