18/02/2016

The Trouble With Making Predictions - by Jeff Fitchett

Time passes before you know it. Years come and go and events slowly pass us by while we muddle along in this wacky world of ours.  We have all read articles and watched interviews from people that make predictions that the US dollar is going to collapse on a specific date or by year end in any given year.   Many forecasts have been prognosticated and yet the world continues to spin. The troubles we face are very real and the end outcome is somewhat predictable.  What is not predictable has to do with timing.  Many people, over time, begin to suffer from normalcy bias and start to believe that this is the way the world is and it will continue to be.  I do not share this view that things will continue on as they are indefinitely. I think it is important to analyze and make sense of what people are saying, but also realize that manipulation, propaganda and outright rigging can extend our way of life longer than many think is possible.  

I remember back in September of 2010, I became extremely concerned.  I could see Europe's debt markets becoming very unstable.  As you know, the world is connected and if something happens in Europe, China or the US we all feel the reverberations from the systemic issues that are occurring.   I recall finishing up with a client meeting in the early evening and then heading to the grocery store to buy sacks of rice, flour, sugar, salt, dried beans and a number of other staples I used frequently.  Customers in the check out line looked at me with bewilderment as I clearly displayed that I was stocking up, but my physical attire was a contradiction for them given my business suit and clean cut look at the time.  

Shortly after my visit to that grocery store back in 2010, central banks began their quantitative easing programs.  This was an unexpected move that most market participants did not anticipate.  The rules of the game changed and they continue to do so.  I am very cognizant of the fact that many more tricks will be used to kick the can a little further.  We have had low interest rates, negative interest rates, bail-ins, Troubled Asset Relief Program, QE1, QE2, Operation Twist, QE3 and outright central bank buying of stocks, bonds, mortgage securities and likely many other 'assets' we are unaware of.  The Hungarian central bank recently bought 200,000 rounds of ammunition and a stock pile of handguns. The point I am driving at is that I expect many more directives to be deployed that we have not thought about or can even imagine.  

There is a consensus view that this is going to be a very bad year for the financial markets and the overall economy.  After all, the trends have been building slowly over many years.  I liken the decline to a cancer that is slowly spreading within a person.  An unhealthy lifestyle often contributes to the spread of cancer.  Our global system is extremely 'unhealthy' and I think the systemic issues we face should be taken very seriously.  A black swan event could disrupt or collapse our economic and global financial system in short order.   I think it is important to understand the reality in which we live in and make decisions now that will help us down the road if a worse case scenario plays out.  It is better to be prepared in advance when compared to preparing after the turmoil begins.  Try not to get caught up in fear as many doom and gloom predictions are announced.  Look at the world, understand that we are in decline, think about your life near term, medium term and long term and then take steps to firm up your personal situation.  

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