Financial Bubbles | timiacono.com - Part 3

Our Fat Future and Other American Ills

More evidence that Devo was right comes via this Marketwatch story explaining why our collective American future may not be so bright. It includes the chart below (along with three others that all point in the same direction) as the reason for concern.

About the only good news here is that we seem to have licked the hunger problem…

Deflation: The Central Bank’s Bogeyman

Ahead of the Federal Reserve’s big day today, via this item at the WSJ Real Time Economics blog, it is learned that the Bank for International Settlements has questioned the conventional wisdom amongst the dismal set that deflation is such a bad thing. From their recently published quarterly review comes the graphic below demonstrating such.

The report concludes that, save for the Great Depression, there is little or no correlation between falling consumer prices and economic growth, however, falling asset prices are entirely different and, sadly, in our asset bubble dependent global economic growth model, this kind of trumps everything else.

With each passing year, the prospect of Federal Reserve rate hikes seem more and more like Charlie Brown trying to kick that football held in place by Lucy Van Pelt in one of the better known scenes from A Charlie Brown Thanksgiving.

That point should be pretty clear in the chart below that appears in this Bloomberg story.

“Ha! You’ll pull it away and I’ll land flat on my back and kill myself.”

Trend Following and Investment Losses

Given the relationship of the two data sets shown in graphic below that depict the fortunes (or lack thereof) of John Hussman’s Strategic Growth Fund (HSGFX) in recent years, the accompanying Wall Street Journal story ($) by Morgan Housel is surprisingly kind.

Of course, the bigger story here is really how investors chase performance and how trend following can lead to investment losses. Another important point is that Hussman is not necessarily wrong to be so bearish over the last six years – he might just be early and, over the long-haul, his approach may end up looking pretty good, as it did a decade ago.

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