In one corner, we have the Bulls. “Stocks near record highs.” “Investor risk aversion is disappearing quickly” as “Junk bond yields hit another all-time low.” The housing market is recovering! US unemployment claims are at a 5-year low! Even the deficit is looking optimistic! Etc. Etc. We’ve finally made up for the last few years and are ready to push on towards a bigger and better future!
In the other corner, we have the Bears. “The market has become dangerously euphoric” even as global growth is declining. EU unemployment is still rising. Cyprus is defaulting. Obamacare is not slowing down health insurance costs. US deficits are still over one trillion dollars per year and interest rates are still at zero, and that’s before the next recession hits. Etc. Etc. We’re sitting on top of another artificially inflated bubble that’s about to come crashing down harder than the last one!
In the middle, we have me, reading lots of websites and ending up with very little confidence that things are about to get better, or worse, or both, or neither. In a complicated world there will always be good economics news and bad economic news, and there will always be very confident Bulls and Bears convinced that the good/bad news is severely outweighing the bad/good news at the moment.
Both groups are mostly wrong, which is why I get tired of listening to them, but neither group is always wrong, which is why I keep listening to them. But it also means I have no idea what’s going to happen next. Most people, especially the Smart mainstream elite types, didn’t seem to the last big crisis coming, including the Federal Reserve. But some did.
There was a January 2008 GOP Presidential debate where the moderator asked about “growing concerns that the country is headed for a recession.” Most of the candidates talked about the possibility, but Ron Paul confidently declared that it was already here: “I believe we’re in a recession. I think it’s going to get a lot worse…” A few months later, the NBER declared that the recession had started in December 2007.
Ron Paul the Bear couldn’t have been more right! Or was he? After all, when it comes to the disastrous effects of hyperinflation that he’s been predicting for years, Ron Paul the Bear hasn’t been more wrong!
There are always people predicting the imminent collapse of the unstable financial system, and there are always people assuring us that the system has never been more stable. And usually, though not always, the same people are on the same sides.
Meanwhile, the system goes through periods of seemingly increasing instability (say, 2007-2008), and seemingly increasing stability (say, right now), and it’s hard to tell if the respective Bulls and Bears just get lucky when the system finally lines up with what they’ve been saying all along, or if they actually have some insight into what is going on that the other side lacks. Maybe it’s a little of both…