2015: A New Era Arrives

It may be that when we no longer know what to do
we have come to our real work,
and that when we no longer know which way to go,
we have begun our real journey.
The mind that is not baffled, is not employed.
The impeded stream is the one that sings.

—Wendell Barry

We will want less in 2015. Making do with what we have will be the Black Swan, N. N. Taleb’s term for an event which nobody predicts beforehand, has enormous impact, and, afterwards, everyone says they saw it coming. The arrival of the Grand Supercycle bear market will usher in a siege of austerity.

 With the new mood, ostentation will be unseemly. We will come to prefer, and even celebrate frugality. We’ll brag about not running out to Best Buy to get a 70 inch flat screen so we can view the Super Bowl from the next room over. We’ll smugly invite our guests to sit closer to the 40 incher we have.

The Black Swan will put a serious hurt on the seventy percent of the economy that is consumption. There will still be jobs for sales clerks–at least until robotics advance to the point where the bots can dust and rearrange the merchandise that sits on shelves in empty stores month after month. It will get down to a replacement economy. We won’t go get a new smartphone ’till the one we have is dead. And even then we might pass up the new model for the discounted old.

Newly minted college grads will have to find something to do other than bartend or serve food at Appleby’s. Pot luck dinners with neighbors will take the place of dining out three times a week. It will be a genteel austerity.

None of this is expected, of course. Tenured dismal science (economics) professors and their colleagues on Wall Street are of one mind: the economy will grow at an accelerated rate next year (you could look it up). Their clients–mutual fund managers, and their clients–hapless individual investors, have all their money on the growth horse. They will change their minds after the market has lost half of its value, but, for now, forewarned is better.

Socionomics holds that social mood drives behavior and markets. The period ahead will showcase this hypothesis. Americans have not been big savers over the last fifty years. This is about to change, just as it did in the thirties, which produced  The Greatest Generation,  a parsimonious bunch who would rather put money in the savings-and-loan than go out to eat. The credit card industry will be dead by the end of the decade.

The inflation/deflation cycle is immutable. It rises out of the ashes of the previous collapse, builds cautiously for several decades until shoppers are blithely opening the eleventh credit card account (it’s so easy), and tops when the debt can no longer be paid for. The timing of the top is tricky. I’ve called for it for years. I’m calling for it again.

The thing to do is to be in front of the pack on this new way of thinking. Be the first on your block not to fly to Paris over Spring Vacation. Keep your car a year or two longer than usual and don’t trade it for a Cadillac Escalade. Get a Chevy.

Cheers,

Rod

No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.

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