As you know I take a different approach on the “economic collapse” theories. I took a different approach and have done fairly well on my limited (I am not wealthy) investing. Just so you know ….from 1/3/2011 (first trading day after our last significant discussion) until today …(as of a couple days ago).
Dow Jones: +33.6%
I believe there is a limited chance of “economic collapse” in the immediate future, even though the system is totally rigged and detached from reality. For one reason there are so many people who are so dependent on the system that they will fight hard to keep it from collapsing. Think of every farmer getting Farm subsides, every cop or veteran getting benefits or retirement, social security, medicare, etc. Every current government worker and retired government workers. Anyone getting a check from Uncle Sam. All of them will vote, and fight to keep what they feel is theirs. The government will go to lengths unseen to keep this gravy train running and they very well may have popular support. This fact, of barley constitutional changes that take 20 years to litigate, is often not address by economic collapse theorist. This is what Brad suggest of “…when stuff starts to happen there are basically many compensatory mechanisms (capital is redeployed, governments take action, etc.).” Remember when all of those checks stop coming, your neighbors will energetically vote and support the rescue package.
And because of that, the current system will not go “quietly into the good night.” This posting includes and ongoing conversation I have with a very successful (well pretty successful) venture capitalist who I will call The VC. The basics is he is a “nay-Sayer” to all the doom and gloom “economic collapse” theories. I take what he says, and take what other say and come to my own decision and encourage you to do the same. I think it is important to get information from as many sources as possible.
The average time between recessions is approximately every 5-8 years or so, so odds are we will have another recession in next 10 years (like an 80% chance). IMO, likely near term triggers are China melt down and/or Obamacare drag, etc. That said, I put the odds at no more than 15% that we have another crisis like 2008-2009, and less than 10% that we would have anything worse than 2008-2009 (or a true crash).
Unfortunately, the nature of most crashes is that its usually a combination of events that aren’t necessarily easy to see – some part of natural business cycle, some commodity bubble bursting / and or a commodity shock (e.g,. oil embargo), often doubled down on by some combination of incredibly stupid political action (e.g., Obamacare), and / or a shooting war (which I guess could also be considered stupid political action in some respects). I’d be watching for all the normal stuff you worry about …..
• Gold 2000
• Dollar drops by more than 25% against EURO/ Pound
• Oil up by more than 30-40%
• DOW crosses 20K
• Building bad news out of China (debt and GDP growth)
• Inflation starts to spike (i.e., we see inflation get into the 6-7-8% range)
• EU or Brazil economy start to implode
• A shooting war
• Locust plagues
• 40 day floods
• Alien invasion
Last three are obviously in jest, but to really upset the applecart is going to take a confluence of events that is by definition uncommon and unexpected. Even three or four of things might not actually trigger any kind of depression type move – as even then a lot depends on timing and interaction – and as we’ve discussed, when stuff starts to happen there are basically many compensatory mechanisms (capital is redeployed, governments take action, etc.).
This are pretty normal economic trends that people watch, this is really not telling you any thing. The only thing that is happening that is of concern from the above list is the BRICS nations are having issues and the DOW is at all times highs but still around 16,000. Additionally I have growing concern over the labor participation rate.
When Does A Bubble Spell Trouble? From the Wall Street Journal.