The Peril of Financial Wisdom

So, I went to Yahoo to check my email and I saw this story on their main page. The gist of the story goes something like, “now is a terrible time to take your money out of equities because the market is down.” This is wise investment advice informed by decades of careful observation. But, is there anything missing.

As a point of full disclosure, I liquidated my equity position in late 2003 (I had 6 shares of stock in a railroad company). So I am ‘bullish’ on the markets.

To get back to the idea in the article, I believe that they are missing three fundamental differences between all past recessions and today.

1.

The US no longer has a significant natural resource base to exploit. Without this, there is not enough domestic surplus available to provide raw materials and energy for economic recovery. We will call this the lack of fuel to start the economic fire.
2.

The United States is losing hundreds of billions from the economy every year due to the fact that the US is a net importer. This means that we are not selling to the rest of the world, we are buying from them. This was a major source of wealth creation in the past, and it is gone.
3.

The United States government likely will not be able to buy our way out of this mess. They are trying, but no matter how much debt they take on, without a prospect for growth on the other side the economy has no where to turn.

The problem is that financial advice is the interpretation of the past. The economic rules have changed, there essentially are no rules. The financial advisors either don’t want to admit that, or they want you to keep your money in the market which they hope will prevent an all out crash from unfolding. Or to be more cynical, they want you to keep your money in the market, thereby keeping it inflated, until after they get their money out. But that would mean they actually know what is coming, and I am not convinced of that. I think they are still true believers.

Time will tell. I will say that these modern supercapitalists kept this ride going for two years longer than I figured it would last. They are not to be underestimated, for that reason if no other.

More fucked than they think we are,

Mike