“De,” “In,” or “Stag?"
du Pasquier Asset Management
By Scotty George
August 15, 2012
So far, key data has been unable to answer conclusively whether we are in deflation, stagflation, or targeted inflation. I wrote several weeks ago that I saw no empirical statistics indicating inflation. I was partly right…and partly wrong. Indeed, I had been early in identifying targeted inflation in tuition, foodstuffs, energy and healthcare. These demographic price hikes are systemic, and mostly driven by consumer demand or ecological/climatological influences. On the other hand, where no demand exists, profits, and prices, have been falling. Unfortunately, the drag on the economy outweighs any pockets of acceleration. That is why the market doesn’t “believe” a recent rash of earnings successes and immediately reverse its bearish course.
The only hope, it would seem, would be a sea change in how the private sector chooses to deploy its trillions in capital reserves before the government steps in to tax it away from them or moves to “nationalize” the public’s psyche and chases big business into submission. Many agree that immobilizing the wealthy only antagonates them. The flip-side to that debate, however, is that coddling the “haves” also alienates the “99%” who are the “have less.”
In a sense, this is a struggle of moral persuasion versus bombastic super strength.
When economies break down into rioting and civil war, such as is the case in the Middle East, you have run out of fiscal and monetary solutions to the crises.
The other key element to this debate is the time horizon one applies to analyzing the causes and cures of a global recession. It didn’t take one policy, one administration, or one nation to initiate the decline, nor might it take one person or theme to remediate it. On the other hand, there doesn’t seem to be enough fiscal firepower in the arsenal that might represent a cause-and-effect immediate response to what ails us.
What is clear is that acts in the past are less relevant than future actions. We used to talk in the 1980’s about global interdependence, globalism. We now know how true that was. Earnings from your local bakery today might be as much a function of nations thousands of miles away as they are from adjoining neighborhoods.
Not overnight.
There are still opportunities for the right businesses to succeed. We are probably, and statistically, closer to the end point of a recession than its origins. Expectations have diminished, and that’s usually when opportunity finds fertile ground. It might be possible, from the depths, to reconcile opposing points of view to look at the longer-term, wider aperture of solutions.
So just what is the economy telling us about its ability to sustain, or engender, growth? Even global policymakers admit that it requires more time to bridge the gap from austerity to solvency. Their guidance would indicate that stimulus packages are mostly exhausted, and market traction has been woefully inadequate.
Update.
The bottom line is that global growth is slowing, on balance. A lack of momentum and psychological conviction might keep us range-bound for the near future. As an earnings-driven analyst, I see a preponderance of evidence indicating a slowdown in earnings acceleration patterns, a key statistic in my ratios of upside/downside probabilities.
One is always aware of exogenous influences upon one’s data, like the U.S. Presidential election for example. Similarly, long term systemic pressures require huge secular shifts in momentum to make even the slightest computational adjustment. I recommend underweighting risk for the time being, until I see momentum shift.
I am going to keep this missive in my desktop drawer and re-read it in two years to see how we have answered the “De,” In,” or “Stag” question.
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
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