Posts Tagged ‘Economy’

Simulated Boom?

October 22, 2007

I’ve been wanting to write about the economy for some time now, both because it’s interesting to me, and because I think we’re living in interesting economic times. If this sort of thing bores you, stop reading now (you’re already doomed anyway).

For the past couple years I’ve been watching the markets closely, trying to make sense of things and forming some models in my head. I made a large bet against the US dollar in 01/2006 (MERKX) and haven’t been disappointed so far. Last week I made another big move, changing my 401(k) asset allocation to 100% cash equivalents (FDAXX). My gambling money is out of stocks excepting of a single fund with holdings in the energy and natural resources sector. Even that may be a mistake.

I’m not really concerned about missing out on any market surge due to future interest rate cuts. If the market gains 1% and the dollar declines 1%, have you really gained anything? Think of what a foreign investor would see. The US market gains of the past few years look pretty sad when measured in euros. Now factor in inflation in the foreign currency of our choice. Has the “boom” market even been a reasonable store of value, let alone gains?

This all leads me to my latest market conjecture. Some pundits are now starting to talk about recession. It’s certainly hard to ignore the housing market and mortgage lender woes. Here’s the thing: When has a recession ever started with foreclosures and bank failures? These are trailing indicators. We’re now starting to see some leading indicators in consumer sentiment, reduced spending, and narrowing profit margins in consumer staples.

Isn’t it possible that we’re almost seven years into a stealth recession masquerading as a boom due to low interest rates and easy credit? Somewhere along the way people have confused debt with money. After all, they seem pretty similar until the repo man shows up. So here we are, with some indicators that we’re well into a recession and some indicators that we’re about to enter a recession. How long before we start hearing the “d” word? The next few weeks should be very interesting. I’ve placed my bets, have you?