Almost two months ago, on November the 21st, the day I signed off (sign off: taking a break from weekly posts), I suggested there were going to be changes in investment fashions. I am not going to go into too much detail on whether my views have been proven correct or not, instead I’ll try to keep it simple. After all the conventional wisdom is that complex ideas are proof of a confused mind.
So here is my new simplified approach with less metaphorical language and more direct analogies than I’ve used in the past:
At the start of November, my analysis had shown that the US economy had a 0% rapid linear progression of sperms. What does this mean? It means that the US economy was shooting blanks! Subsequently meaning the domestic investor wasn’t going to get pregnant by sticking with him. I suggested we needed to consider artificial insemination with injections of more stimuli by the Fed.
Ultimately, I suggested, this lack of easing by the Fed would push the global investor to interact with other markets in order to conceive. As a natural Bull Hunter that’s exactly what the investor did. By practicing safe sex with more fertile counterparts the investor is now well positioned in international safe paper!
And to those suggesting that the economy through the recent stock market performance has shown signs of recovery, I’ll just mention two simple words: sperm count! The complete lack of volume (25% of what the count was just a few years ago) is not a sign of a healthy person……
So Dan Denning, the author of the Bull Hunter, back in 2005 was spot on regarding the bursting of the housing bubble, the multiplier effects of the unsustainable high oil prices and their impact to decreasing economic activity, the failure of the majority of the financial industry and many other predictions. So why did Denning get the dollar story so wrong? And why did his theory of money migration to emerging markets and other foreign markets also proven wrong?
To me, the answer is clear! His pro-Austrian economics/philosophical beliefs regarding monetary policy were flawed!
He could not foresee the impact of the central bank's decisions would have to investment psychology!! For me, there is no doubt that if the Fed had not acted so decisively, all of Denning's predictions would have been a reality today!
The Fed knows this and it also knows that it's actions carry the greatest weight in the economic reality of today. The Fed also knows that it needs to better communicate this reality in order to combat the growing skepticism arising mostly from the Republican party.
So although it appears in Denning's case the tea leaves could be read! However, the lack of understanding the power of behavioral finance in shaping economic outcomes, proved crucial in his most important call: the demise of the almighty dollar!
Confidence does matter! And the global investor feels confident in US's resolve to act and not sit idly hoping for a favorable outcome!!