One of the concerns we have expressed here over the years is that there was much more -- and less -- to the post 2001 recession recovery than met the eye.
Several years ago, this was a controversial position. We first suspected we were on to something, however, when the many critics of this view found it much easier to use epithets (negative, naysayer, perma-bear) than to do the credible critiques of our positions, or any kind of critical analysis. It reminded me of an old lawyer's joke: "When the facts go against you, stress the law; when the law is against you, emphasize the facts; when your case has both the law and the facts against it, call the other lawyer an asshole."
As of March 22, we are still in the early stages of any sort of widespread understanding about this post-recession recovery cycle. Many people are just starting to realize how much fertilizer has been spread around.
Many of the stated economic gains have been a false ghost. Whether it was overstated job creation [NFP], understated inflation [CPI] or "inflated" growth [GDP], a shocking amount of the debate about the economic expansion has been primarily spin.
That's what attracted me to this book by Farhad Manjoo: Learning to Live in a Post-Fact Society. That such a book is even necessary boggles the mind. Consider the myriads of benefits and standards of living improvements we have seen from the reality-based community -- and by that, I mean Scientists (Physicists, Biologists, Medical Doctors) and Engineers (Technology, materials and mechanical). Why so many people would turn their backs on this belief system leads me to Arthur C. Clarke's 3rd law: "Any sufficiently advanced technology is indistinguishable from magic."
While a "Post-fact society" might being intellectually appealing for the slavish followers of a given political or religious order, the same philosophical approach invariably proves very costly for investors -- if not financially fatal.
Consider these elements that are of interest to investors:
1) What objective reality is;
2) The variant perception: What the widespread belief system is versus this objective reality;
3) How far these two are out of alignment;
4) And most importantly to Traders, when the variant view recognizes its error and embraces either a more realistic, or an even more fantastic, view on reality.
For example, as weak as many of the traditional metrics have actually been, some sectors of the economy have enjoyed strong legitimate gains: Everything energy related has been on fire for at least half a decade; the entire agricultural explosion has been for real; all things China-related have enjoyed strong growth (though it certainly became frothy this past year). Metals and Miners have done well, and Transports have had a terrific run, be they rails or shipping. If the economy was truly strong and healthy, these sectors would be ones to avoid.
Consider also the US industrials -- they boomed courtesy of a weak dollar (not healthy) and improved production management (very healthy). What is being called Web 2.0 is seeing genuine innovations, functional business models, and increasing significance in the economy (also healthy).
If you correctly identified where things were healthy or not, the right themes before the crowd caught on, there were plenty of financial gains to be had.
Philosophically, I want to explore -- beyond the legitimate gains mentioned above -- a nagging question about the spin and artifice. Why have we as a nation been increasingly reluctant to confront objective reality? What is it about the present social mood, political leadership, and economic environment that has so totally led us to a world of denial? Up is down, black is white, good is bad -- it's all very Orwellian.
One of the world's great cautionary lessons are the significant contributions made towards mathematics by the Islamic Arab Empire, circa 8th century to 15th century. While European intellectual progress had ceased -- blame the rise of church extremism -- enormous gains were being had elsewhere. Sometime around the 18th or 19th centuries, the cultural roles seem to reverse. After the Age of Enlightenment, the Europeans rejected religious extremism, and prospered, while the Arab Empire embraced extremism, and suffered -- at least until the discover of Crude Oil. There are societal lessons to be learned from this.
I have long railed against superficial headline data that belied the weakness underneath. There were a parade of sycophants and cheerleaders who, despite knowing better, continued to cheerlead punk data. These pundits, politicos and pinheads are now confronting the ugly reality they can no longer ignore. Consider the progression the motley crew of fools and liars went through: First they denied what was happening, then we got the whole contained thingie, then they blamed da Bears. Now, they have unwittingly embraced Marx, and have successfully plead for the central planners to rescue them from their own stupidity.
Here's my question: Are we stuck with these fantasists? Has Truthiness replaced Truth? Are we going to be saddled forever with these damaging, hallucinatory hacks?
Worries That the Good Times Were a Mirage
NYT, January 23, 2008