Bubbles & Postulating
Anyone from the United States and has kept up with the news knows that the USD is in trouble… we have an estimated $13 trillion budget deficit (with a capital T). The other “strong” currency the Euro isn’t faring much better, with Greece, Spain, Ireland, Portugal, and others teetering on the verge of bankruptcy.
What does this mean? If the countries can’t settle their debts and instead they spiral even more out of control by printing more of the fiat currencies then all signs point to strong inflation, screwing the average Joe (I’m hesitant to state hyperinflation cause that just leads me to think of Zimbabwe and that seems like an impossible exaggeration).
On the other hand, if they don’t let the printing presses run wild and unemployment, credit freezes, collapsing commercial real estate, looming option-ARM/Alt-A loans explode in 2010-2012, etc… become rampant then we are all in a world of hurt, resulting in deflation.
On a third hand, it is obvious that China and Canada are immersed in property bubbles about to pop… so their economies might be following the United State’s lead in the near future.
On a fourth hand, people have be postulating that gold is in a ginormous bubble all of its own and dozens of soothsayers have predicted the last 50+ pops over the last five years (unfortunately for them, none of them have come to fruition).
Where does that leave us? Don’t know. Like all things economics, it is unpredictable in the short-term and there is only a statistical 78.5% of being right in the long-term (did you know that 86.9% of all statistics are made up on the spot?). With so many factors into play, I premise that nobody can predict what will happen in the future with a high degree of certainty.
As much fun as all this hypothesizing of the macroeconomy is, it does get tired after a while of seeing extreme volatity with no obvious cause. My posit that there is no order, everything in the markets is random with occasional black swan swarms arbitrary attacking us (and pecking us half to death every few years like the chickens do in Zelda when you hack them with your shiny sword) and flipping the world upside down seems to be more and more likely.
So now, my with brain on a backburner and emotions thrown in the kitchen freezer, I will just diversify according to the Permanent Portfolio. The key of diversification through stocks, long-term bonds, cash, and gold seems more relevant today than ever before. I’m done stressing out about whether we are out of the recession, still in recession, sliding into deflation or rising to inflation. I’ll probably be wrong anyways.
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