Friday, March 21, 2008

The Great Moderation

With month end being so important on so many levels (Japan year end, expiry, margin requirement changes activating, etc.), and things looking so bleak, I typically recite the mantra "things are never as good nor bad as they really are." Admittedly, the sentence structure of the preceding mantra is atrocious...but the point is that the time to throw caution to the wind draws near. The balance points are beginning to shift to optimism. Fasten your seat belts in the next couple of weeks and well into the 2nd quarter, however.

Here is a wonderful example of why the above mantra holds true - Bernanke's missives from 2004 on how financial engineering and innovation is paving the way for a world where economic cycles are muted and sustainable GDP growth of 4% is a certainty.

We all know how that rather pollyanish view of the world is turning out. Most of you know I value numeracy when it comes to analysis. However, the power of anecdotal evidence must not be ignored. The same people who declare their home values will appreciate 15% per year until the supernova of our sun also scream bloody murder and the end of the United States when times are not so sanguine.

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