So far, key data has been unable to answer conclusively whether we are in deflation, stagflation, or targeted inflation. I wrote several weeks ago that I saw no empirical statistics indicating inflation. I was partly right…and partly wrong. Indeed, I had been early in identifying targeted inflation in tuition, foodstuffs, energy and healthcare. These demographic price hikes are systemic, and mostly driven by consumer demand or ecological/climatological influences. On the other hand, where no demand exists, profits, and prices, have been falling. Unfortunately, the drag on the economy outweighs any pockets of acceleration. That is why the market doesn’t “believe” a recent rash of earnings successes and immediately reverse its bearish course.
The
only hope, it would seem, would be a sea change in how the private sector
chooses to deploy its trillions in capital reserves before the
government steps in to tax it away from them or moves to “nationalize” the
public’s psyche and chases big business into submission. Many agree that immobilizing the wealthy only
antagonates them. The flip-side to that
debate, however, is that coddling the “haves” also alienates the “99%” who are
the “have less.”
In a
sense, this is a struggle of moral persuasion versus bombastic super strength.
When
economies break down into rioting and civil war, such as is the case in the Middle East , you have run out of fiscal and monetary
solutions to the crises.
The
other key element to this debate is the time horizon one applies to analyzing
the causes and cures of a global recession.
It didn’t take one policy, one administration, or one nation to initiate
the decline, nor might it take one person or theme to remediate it. On the other hand, there doesn’t seem to be
enough fiscal firepower in the arsenal that might represent a cause-and-effect immediate
response to what ails us.
What is clear is that acts in the past are less
relevant than future actions. We used to
talk in the 1980’s about global interdependence, globalism. We now know how true that was. Earnings from your local bakery today might
be as much a function of nations thousands of miles away as they are from
adjoining neighborhoods.
Not overnight.
There
are still opportunities for the right businesses to succeed. We are probably, and statistically, closer to
the end point of a recession than its origins.
Expectations have diminished, and that’s usually when opportunity finds
fertile ground. It might be possible,
from the depths, to reconcile opposing points of view to look at the
longer-term, wider aperture of solutions.
So
just what is the economy telling us about its ability to sustain, or engender,
growth? Even global policymakers admit
that it requires more time to bridge the gap from austerity to solvency. Their guidance would indicate that stimulus
packages are mostly exhausted, and market traction has been woefully
inadequate.
Update.
The
bottom line is that global growth is slowing, on balance. A lack of momentum and psychological
conviction might keep us range-bound for the near future. As an earnings-driven analyst, I see a preponderance of
evidence indicating a slowdown in earnings acceleration patterns, a key
statistic in my ratios of upside/downside probabilities.
One
is always aware of exogenous influences upon one’s data, like the U.S.
I am
going to keep this missive in my desktop drawer and re-read it in two years to
see how we have answered the “De,” In,” or “Stag” question.
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