Frankenmarket Lives
staggering
forward, arms outstretched and seeking sanctuary
Gary Tanashian
Posted July 5, 2004
Introduction
As we enter the summer of 2004,
our markets appear to be moving with all the grace of Dr. Frankenstein's
creation, staggering forward, arms outstretched and seeking sanctuary.
Ideally, the market would find that comfortable place in the
arms of a healthy, productive and fundamentally sound economy.
But will it find those loving arms, or will it instead ultimately
find an angry mob, ready to strike it down?
What follows is a breakdown
of the situation as I see it. There will be no charts of trends
or statistics, but merely what I consider to be a common sense
overview of the situation. I will compare what was to
what now is, at least as far as the US economy is concerned.
A Country That Was
The very origins of America, at least westernized America, are
rooted in independence, self-reliance and hard work. A land of
opportunity for anyone willing to work hard, take chances and
go for what became known as the "American Dream." In
short, people were free to come here and define themselves and
in so doing, define a great nation that seemed to out-work, out-produce
and out-compete most others. It is no wonder that as this great
vacuum was filled with productive people seeking a better life,
America was built, brick by brick and with constant sweat-equity,
into such a powerful economic and cultural force, affecting and
influencing the majority of the modern world.
From the early days of the
industrial revolution right on through two world wars and well
into the cold war, America seemed to thrive as each new era presented
its own particular set of problems. There were setbacks of course,
notably the Great Depression of the early 1930's. In fact, many
would argue that policies originating from the depression's aftermath
would set the country on a course to a destination we now find
ourselves approaching; a predominantly paper-based, service oriented
economy and a financial system underpinned by credit (and its
evil twin, debt), speculation and fiat debt paper, aka
the US dollar.
Our Modern Economy
Whereas a less-mature, formative America worked and produced
itself to the stature of superpower, we now find a bustling,
mature society that sadly feels entitled to its riches and stature.
In short, hubris has set in to the American consciousness, and
it is hubris that I believe will be its downfall. We are simply
not seeing things through the same eyes that our great grandparents,
grandparents and even parents saw them through. And because of
that fact, we have transitioned from production to consumption.
Consumption being a much easier route. After all, why
work and produce for what you want when you can attain easy credit,
and seemingly get the same results. This would not be so unsettling
if it were only a portion of our population going in this direction,
but the scary part is that the whole country, Uncle Sam,
has gotten on board and I would argue, has led the charge into
this brave new world of Alan Greenspan's "information economy."
Meanwhile, third world nations
do the work that we have risen above as an entitled superpower.
Why would we need to do the "dirty" jobs like manufacturing
after all, when we are the world's number one financial services
provider? We will continue to do certain dirty work, such
as construction, that can't be outsourced. And if it's construction
for infrastructure, so much the better. Uncle Sam is hiring!
With your depreciating dollars.
This leads me to the main point
regarding our current economic recovery. This is a recovery built
on inflation, not real productivity. This far into a recovery
cycle, I would expect to have seen a far less accommodative Fed,
as growth has really picked up and inflationary pressures are
becoming apparent even to those who believe the official massaged
numbers in the CPI and PPI. But as a friend of mine says, we'll
probably get "tightening lite," or the Fed talking
the talk, but in fear of short circuiting the economy it created
through unprecedented liquidity from negative real interest rates,
a credit system gone berserk, and vendor financing agreements
of massive proportions in the form of Asian central bank purchases
of our treasury paper.
Frankenmarket
So where does this leave our poor monster, sloppily stitched
together and meandering aimlessly forward? The market will
look to the economy, and being a forward looking monster, I expect
it to see one of two things; The Fed taking away the punch bowl
for real, deciding too late that the party is over, or more realistically,
it will see a Fed doing all it can to sustain the monster it
created. This market was stitched together with debt, and it
will require more of the same to keep it going. We are knocking
on the door of hyperinflation, and I believe the Fed will choose
to open that door, given that it is too late for our economy
to de-leverage in any orderly fashion.
As entitled modern Americans,
I can envision the majority seeing this as bullish, and Alan
Greenspan gaining even more accolades as the celebrated maestro.
Frankenmarket will probably get an extra bounce in its step.
A warning before you go full-bore bullish longer term though;
for a reality check on what hyperinflation means, do a little
research on what Germany experienced in the 1920's. By contrast,
a garden variety Japan-style deflation would have seemed
very tame. But it is too late for that now.
I'll be buying more gold with any profits realized from such
an inflationary bonanza, but that's a story for another day.
Jul 1, 2004
Gary Tanashian
email: info@biiwii.com
website: www.biiwii.com
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Copyright ©2004-2006 Gary
Tanashian
Disclaimer: Gary Tanashian does
not recommend that any trading or investment positions be taken
based on views expressed here. If you speculate or invest it is
suggested that you consult a financial advisor qualified in your
area of interest.
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