And so the roller coaster ride continues, and today’s rise in initial jobless claims should keep us on the down side. I find it interesting, though, that with the continued spate of “soft” economic news, the market still applies the brakes when the downhill speed becomes too great. This tells me that although fear and uncertainty still drive investors, an understanding that the economy in general is healing and it is just a matter of time before the economic recovery firmly takes root underlies that sensibility.
Given this current state of affairs, the question below is quite apropos, and the questioner frames the question in just the right way with the words “most likely path.” Given that she did such a good job with the question, I will throw my two cents in regarding our economic future, even though my crystal ball is in the shop for an oil change.
What do you consider the most likely path for the US economy in the coming 1 – 2 years – inflation? deflation? stagflation
In still another former life, I worked as a network administrator. My job was to install and maintain networks for businesses. Today, that work is much simpler with all the advances in network hardware and software, but “back in the day” when a problem arose, the only path to solution was to eliminate variables one by one. Tedious, for sure, but, ultimately, eliminating those things that might be the cause of a problem provided a certain path to a solution. The solution to today’s economic woes will naturally follow the same path we old-time computer geeks followed when we solved problems. Thus, if we want to speculate on our economic future (1-2 years), let’s look at the variables that create inflation, deflation, or stagflation.
- The single largest variable is the possibility of a catastrophic event, such as a bio-chemical or nuclear terrorist attack, or a major war in the Middle East. Let’s assume nothing of this horrible nature will occur.
Now that we have the future on a more-known basis, we can look at the known variables that create inflation, deflation, or stagflation.
- Cost of goods
- Wages
- Government fiscal and economic policies
- Deficit and debt
- Money supply
- Taxes
- U.S. dollar value
- International trade and trade policies
Okay, this analysis is big, but I want to go through it as an exercise in critical thinking, so tune in tomorrow to see what the future will be …
Oh! One more thing. Check out this month’s SFO magazine (emailed to you free of charge). Darrell Jobman’s article (one of TraderPlanet’s contributors) is worth reading for historical and educational purposes. Here is the link.
www.sfomag.com/eSFO/eSFO2010_08.aspx?pg=24
Trade in the day; invest in your life …
