Marc Faber made some ludicrous comments today. QE3, can be as much as a Trillion he claims. I interpret that as ineffectiveness. It does promote his cause for media attention though; outlandish comments typically do. On an another note, this disinflationary path can have consequences, especially if it evolves to deflation. Prices for Yelp, Facebook, Twitter, and other social outlets is free to the consumer. It is mostly all advertising that produces revenues and profits. What happens if we have a downturn, and companies curtail their advertising budgets? Consumers are living this Costco economy, not thinking about the negative repercussions. Price declines as we saw in finished goods like desktop and laptop computers, has caused companies great price compression and margin erosion that resulted in commoditization which had the industry move to services. Now IT services margins are being squeezed as well. The global paradox is a net negative in many aspects, yet it is irreversible, so naturally it is the future. Our niche economy, fully mature, and industrialized is in a new phase. The niches are being saturated too. Inversion of the yield curve is impossible with the Fed sitting on the Fed funds rate. I suppose the slope is artificial, (which it needs to be for now). Without a proxy for future growth we will need to make decisions on solely statistics until such time that the Fed has the ability to walk away. If we are fortunate sometime next year, or the year after stimulus can be halted. However, protracted periods of necessary intervention is a symptom of the price of asset implosions. When Greenspan hiked rates during the housing boom at 50 basis points a meeting, left the bubble only to burst. The economic catastrophe that ensued will last awhile yet. Moreover, in a normal expansion, if rates were where they presently are, P/E ratios would be sky-high, as opposed to being comparable to prior periods. Look for inflation to bring us out of this, as without inflation, we will resemble Japan in the 1990s with the exception of a proactive Federal Reserve. The other more upbeat change would be the velocity of M2. But, again, its in vogue to have no mortgage payment, nor credit debt. It is an intelligent method for fiscal discipline, however, it halts the money supply from circulating at a quick enough pace to bring about higher levels of GDP. The Micro picture is having a detrimental effect on the overall Macro economic activity.
Posted on: Tue, 22 Oct 2013 05:13:39 +0000
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