Just as there is an unhealthy tension in Washington between Republicans and Democrats, there is another unhealthy tension developing on Wall Street -- between "bottom-up" financial strategists and "top-down" economic strategists.
It began after the 2008/9 global financial crisis, when the financial strategists looked at the rapidly-recovering balance sheets of corporations, who were refinancing their debt at much attractive levels. Along with that, their income statements improved with the improving economy. The future was bright, indeed! Economic strategists, however, argued that this improving economy was the gift from the only functioning branch of government, i.e., the Fed, and would only last so long. We saw Wall Street improving, at the same time as the potential for economic collapse was increasing.
A famous Keynesian economist, Hyman Minsky, sounded very much like an Austrian economist when he wrote that debt bubbles grow and grow . . . until they burst suddenly. This is very much on the minds of the "top-down" economic strategists.
So, should you crawl into a cave, guarding your little pile of gold? Or, should you ignore the increasing likelihood of economic collapse? Unfortunately, that is binary "either-or" thinking. Getting out of the market entirely is a foolish 100% bet. Ignoring all likelihood of economic collapse is also a foolish 100% bet. Developing the discipline and determining the triggers to exit from the market is a much more appropriate investment strategy -- one that is consistent with both the financial strategists and economic strategists.
As long as the music keeps playing, just keep dancing . . . it keeps the tension down.
But, don't fall asleep!
It began after the 2008/9 global financial crisis, when the financial strategists looked at the rapidly-recovering balance sheets of corporations, who were refinancing their debt at much attractive levels. Along with that, their income statements improved with the improving economy. The future was bright, indeed! Economic strategists, however, argued that this improving economy was the gift from the only functioning branch of government, i.e., the Fed, and would only last so long. We saw Wall Street improving, at the same time as the potential for economic collapse was increasing.
A famous Keynesian economist, Hyman Minsky, sounded very much like an Austrian economist when he wrote that debt bubbles grow and grow . . . until they burst suddenly. This is very much on the minds of the "top-down" economic strategists.
So, should you crawl into a cave, guarding your little pile of gold? Or, should you ignore the increasing likelihood of economic collapse? Unfortunately, that is binary "either-or" thinking. Getting out of the market entirely is a foolish 100% bet. Ignoring all likelihood of economic collapse is also a foolish 100% bet. Developing the discipline and determining the triggers to exit from the market is a much more appropriate investment strategy -- one that is consistent with both the financial strategists and economic strategists.
As long as the music keeps playing, just keep dancing . . . it keeps the tension down.
But, don't fall asleep!
