We Point Out the Obvious – The Next Economic Cycle is Starting
We have repeatedly advised readers to look at the history of economic cycles since the dawn of the industrial revolution. There have been repeated cycles that all mirror each other, and as long as we are around, these cycles will continue.
A Brief History of Economic Cycles
Whether it is a demand for tulips in the 1700’s in the Amsterdam Market, that promotes itself until it collapses under its own weight, or a demand in the late 2000’s for the new world of the future powered by dot.coms promising to revolutionalize how you wake up in the morning, each cycle has similar characteristics.
The Irrational Exuberance (to quote the irrational Mr. Greenspan) grows until it reaches dizzying proportions, with taxi-drivers becoming experts in that particular frenzy, and Wall Streeters making unimaginably large sums of money selling the extremely overpriced products to the unwary. Then, when the madness reaches its height, cracks appear, common sense pokes its head up, and the inevitable crash occurs.
This describes the recent sub-prime madness, which hurt so very many people. The only difference in this latest of so many crazes over such a long period of centuries, is that this last time the Chairman of the Fed tried to change the world by printing money. That prolonged the madness and dramatically exaggerated the fall. Just really stupid economics thinking on the part of Mr. Greenspan.
Those That Remain Convinced the World is Shrinking Economically
As in every cycle, hordes of doomsayers appear, prophesying doom and gloom, prophesying that currency will become valueless, prophesying that gold will reach dizzying heights, and prophesying that the end of prosperity as we know it has come.
Whether it be Mr. Rosenberg, or Mr. Sprott, or Mr. Schiff or any of the so many other believers, the common theory is that precious metals are the only place to save ourselves.
Don’t Believe Them. The latest economic cycle is just that – an economic cycle.
Invest as if you know that the NEXT BIG THING is on the horizon.
Each economic cycle ends with whole segments of the middle economic class devastated – perhaps never to recover economically. However economics have always run in cycles and for foreseeable future, will continue to do so.
The Stage of this Particular Cycle
We are now in the bottom after the last cycle, and we will slowly crawl up as the next cycle starts. Whether it be a new human initiative, such as the space race to Mars, or perhaps a social economic event such as a billion people in China or India reaching middle class and demanding consumer goods and services, or a conversion of the planet to green energy, or more likely something that we cannot visualize just yet, be assured – the world is recovering and the next cycle is beginning.
The Current Facts
– Latest economic data from the US shows a remarkable fall in unemployment, a remarkable rise in manufacturing and exports, and a rise in consumer confidence. The US jobless figures dropped to 8.3%. Remember a few months ago when it was 9.9%? All of this is occurring in spite of the continuing housing slump, which the pundits insist is necessary for an economic recovery. It is not.
– The pundits confuse the false economic activity created by the housing bubble with true economic activity created by inventions, advancements, technologies and simple consumer demand.
– The European Debt Crisis continues to slowly rumble on, yet new leadership in Italy and Greece come from the camp of economic reality, rather than ‘spend to get elected’. The sanity is slowly returning.
– Greece’s deficit spending is being reduced, and spending restraint is the current range throughout the world. If Greece’s deficit is not reduced, the world will still go on. Other nations will simply abandon Greece and its living standard will plummet.
– Existing debt is slowly but surely being shoved into long term obligations and being reduced, even as current debt is slowly slowing its rise.
– China has still not experienced the massive fall predicted, and although it will experience disruption, just as every emerging economic society has experienced, the fact remains that hundreds of millions of new consumers have been created – all of whom create economic activity worldwide.
The pundits ignore economic reality – established over hundreds of years, that show every cycle reaches it zenith and then collapses, bringing fear and misery – followed by the start of a new cycle which brings enormous prosperity to the new generations of people.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
