Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Recession? No, It's a D-process, and It Will Be Long

online.barrons.com

Post reply on HN
Print view View original

11–20 of 21 posts

Re: Recession? No, It's a D-process, and It Will Be Long

#11

Post by nostrademons »

numair wrote: post #4
fiaz wrote: post #2

I agree with the fact that we are in a "D-process", but I'm skeptical about the "long" part. Something new is happening with the widespread availability of information through multiple channels, and I think because of this our economic cycles are "compressed". My prediction is that the rate at which businesses change/modify/adapt (especially in the financial sector) will be readily reflected in the information that i…

You are ignoring rule #1 in the financial world: "Past performance may not be indicative of future results." Don't worry, the entire financial world ignored this rule as well (which is precisely why I think this is likely to be a long downturn - rebuilding financial infrastructure is a long process involving lots of time and social work; you can't simply legislate it into being).

It seems like everyone involved - homeowners, banks, corporate executives, the government - has an incentive to drag this out, so that this quarter's results won't be as bad as they otherwise would be. (Or in homeowners' case, so they don't end up on the street.) Why take some pain now when the rewards will likely go to your successor?

Re: Recession? No, It's a D-process, and It Will Be Long

#12

Post by nostrademons »

biohacker42 wrote: post #8

Very interesting interview but I was confused about his predictions for gold and inflation. He makes the point that deflation is a serious concern so the Fed will devalue and gold will be a great investment. But then he says that the devaluation will barely produce a single digit rate of inflation and stocks will be a great buy. So which is it, low inflation and cheap stocks, or gold? Gold doesn't pay dividends so th…

The inflation rate isn't the only (or even a particularly good) predictor of gold's value. From 1971-1979, gold shot up from $35-$900/ounce, a 30x increase, yet cumulative inflation was only 6-8x. Then over the next 5-10 years its price fell from $900 to ~$300, a 3x decline even though cumulative inflation ran about 150%.

Gold is like any other commodity: its price behaves according to supply and demand. When there's massive economic uncertainty, people demand it, so its price shoots up. A bubble, in other words. Economic uncertainty includes deflation, panic, and social unrest as well as inflation.

Re: Recession? No, It's a D-process, and It Will Be Long

#13

Post by fiaz »

numair wrote: post #4
fiaz wrote: post #2

I agree with the fact that we are in a "D-process", but I'm skeptical about the "long" part. Something new is happening with the widespread availability of information through multiple channels, and I think because of this our economic cycles are "compressed". My prediction is that the rate at which businesses change/modify/adapt (especially in the financial sector) will be readily reflected in the information that i…

You are ignoring rule #1 in the financial world: "Past performance may not be indicative of future results." Don't worry, the entire financial world ignored this rule as well (which is precisely why I think this is likely to be a long downturn - rebuilding financial infrastructure is a long process involving lots of time and social work; you can't simply legislate it into being).

I'm actually saying that the rule you have stated above holds true even more so if we take into account the high availability of actionable information. Take for example that with "TARP 1" all sorts of irritating loopholes were exposed in a very short period of time (how long did it take for the general public to be informed of the tax exemption for a specific type of arrow used by child archers??).

I want to emphasize that what I'm stating is that in the past, when critical changes took place, it would be some time before all of the information/knowledge of those changes propagated to everybody and this had an impact on the economic cycle (how long or short they were). In today's "Internet Age", the time it takes for changes to propagate is going to be reduced dramatically.

I should add that a direct consequence (and this is purely hypothetical but not unreasonable to include) is that the volatility of the economic climate will increase with the availability of information.

Re: Recession? No, It's a D-process, and It Will Be Long

#14

Post by biohacker42 »

nostrademons wrote: post #12
biohacker42 wrote: post #8

Very interesting interview but I was confused about his predictions for gold and inflation. He makes the point that deflation is a serious concern so the Fed will devalue and gold will be a great investment. But then he says that the devaluation will barely produce a single digit rate of inflation and stocks will be a great buy. So which is it, low inflation and cheap stocks, or gold? Gold doesn't pay dividends so th…

The inflation rate isn't the only (or even a particularly good) predictor of gold's value. From 1971-1979, gold shot up from $35-$900/ounce, a 30x increase, yet cumulative inflation was only 6-8x. Then over the next 5-10 years its price fell from $900 to ~$300, a 3x decline even though cumulative inflation ran about 150%. Gold is like any other commodity: its price behaves according to supply and demand. When there's…

So perhaps what he meant is that gold is a good speculative opportunity, not so much a way to escape high inflation.

I prefer not to speculate so if deflation or low inflation are on the horizon I'd rather invest in something that's cheap and pays dividends, and incidentally, is taxed at a lower rate then commodities.

Re: Recession? No, It's a D-process, and It Will Be Long

#15

Post by FlorinAndrei »

fiaz wrote: post #2

I agree with the fact that we are in a "D-process", but I'm skeptical about the "long" part. Something new is happening with the widespread availability of information through multiple channels, and I think because of this our economic cycles are "compressed". My prediction is that the rate at which businesses change/modify/adapt (especially in the financial sector) will be readily reflected in the information that i…

Good point, but I wonder how much of that is reality, and how much is Greenspan's mistake - you know, that we're entering a brave new world where the old rules do not apply.

Re: Recession? No, It's a D-process, and It Will Be Long

#16

Post by kingkongrevenge »

fiaz wrote: post #13
numair wrote: post #4

Earlier quoted context omitted.

You are ignoring rule #1 in the financial world: "Past performance may not be indicative of future results." Don't worry, the entire financial world ignored this rule as well (which is precisely why I think this is likely to be a long downturn - rebuilding financial infrastructure is a long process involving lots of time and social work; you can't simply legislate it into being).

I'm actually saying that the rule you have stated above holds true even more so if we take into account the high availability of actionable information. Take for example that with "TARP 1" all sorts of irritating loopholes were exposed in a very short period of time (how long did it take for the general public to be informed of the tax exemption for a specific type of arrow used by child archers??). I want to emphasi…

The accessibility and volume of business data have been accelerating for over 100 years. Downturns have not gotten shorter. I see no basis for your hypothesis.

Re: Recession? No, It's a D-process, and It Will Be Long

#17

Post by magoghm »

TrevorJ wrote: post #6
fiaz wrote: post #2

I agree with the fact that we are in a "D-process", but I'm skeptical about the "long" part. Something new is happening with the widespread availability of information through multiple channels, and I think because of this our economic cycles are "compressed". My prediction is that the rate at which businesses change/modify/adapt (especially in the financial sector) will be readily reflected in the information that i…

All the talk of timeframes reminds me of Asimov's foundation trilogy. (The coming dark ages, and the attempts to shorten it, the use of math to describe the actions of large groups of people which is basically what economics is.) Anybody else read this?

My son is reading Asimov's Foundation trilogy, so I decided to reread it (I read it 30 years ago), and I keep noticing similarities to the current economic crisis and all the predictions people try to make.

Re: Recession? No, It's a D-process, and It Will Be Long

#18

Post by TrevorJ »

habibur wrote: post #9
TrevorJ wrote: post #6

Earlier quoted context omitted.

All the talk of timeframes reminds me of Asimov's foundation trilogy. (The coming dark ages, and the attempts to shorten it, the use of math to describe the actions of large groups of people which is basically what economics is.) Anybody else read this?

Yeah! I read it. It was one of my favourate series of all time. Things are exactly as how you have described. I hated the robot series. But Foundation trilogy was a classic!

I'm so happy other people have read it. It's bummed me out that the series isn't as well known as his other works.

Re: Recession? No, It's a D-process, and It Will Be Long

#20

Post by blakeb »

biohacker42 wrote: post #8

Very interesting interview but I was confused about his predictions for gold and inflation. He makes the point that deflation is a serious concern so the Fed will devalue and gold will be a great investment. But then he says that the devaluation will barely produce a single digit rate of inflation and stocks will be a great buy. So which is it, low inflation and cheap stocks, or gold? Gold doesn't pay dividends so th…

There are a lot of pieces, but I think this might be what he's getting at.

Between now and sometime possibly about a year from now, stocks are likely to go down much further than they already have. So stocks are a bad move right now. Reasons behind this are lack of credit due to all the deleveraging and lack of demand due to consumers scaling back their spending due to also being overextended and seeing their home and portfolio prices dropping as far as they already have. Home prices will continue to drop as well, for a multitude of reasons, one being that tons of people can't afford their payments--hence, we have too many homes worth too much.

The reason gold will hold up or go up, in his view, despite lack of extreme inflation, from what I can tell, is this: asset prices (stocks and homevalues) everywhere are falling. But the money's still floating around. This would normally lead to big deflation. But since governments are all going to be pumping cash into their economies by printing money, they'll offset the deflation and we'll end up about even. In a sense it's inflation--money will be valued less; but so will most assets such as homes and stocks. One big asset that won't be valued less is gold. As more people start seeing it this way, gold will go up and up.

I'd guess that around the time he's forecasting a stock trough is when he'd recommend moving a bunch of your portfolio back from gold into stocks.

Post reply on HN