I learned three crucial principles for our economy and markets early on in my forecasting career.
The first is that the economy is a dynamic play between opposite principles.
The second is that natural, cyclical forces have an unstoppable effect on markets and economies, regardless of what we do.
I’m talking about demographic cycles, technology cycles in productivity, geopolitical cycles, commodity cycles… even natural cycles in weather and sunspots. All of these things allow us to see where the puck will move on the ice next.
And the third, possibly most important, is that objectivity is essential.
My success in calling some of the greatest changes in economic trends — changes that almost no one else saw coming — was simply thanks to my being objective… to looking for the truth, not for what I wanted to see.
If you get too caught up in the daily news, like with the recent Flight 370 coverage, you lose sight of the most obvious insights (as I described in recent articles). And that’s true for economic and market matters as well.
Take the Democrats latest efforts, for example…
Democrats are now looking to impose more regulations on the economy and markets, all because the free-market system, with the help of government stimulus, went nuts and created the greatest debt and speculation bubble in modern history.
That move would be a mistake if it went beyond some simple responses to financial policy failures.
They’re not viewing the situation objectively, especially because the top 1% to 20% has garnered most of the gains since the 1990s.
They’re not looking at the natural forces and cycles in play.
They’re taking sides instead of understanding the fundamental truth that opposites are important for growth.
They’re ignoring the fact that extreme income inequality has always marked a major bubble boom and bust.
That rising taxes on the rich and falling power always follows the bubble burst.
Do you know that the top 1% saw their share of wealth fall from near 50% to 25% between 1929 and 1975?
Do you know that their share of income fell from 20% to 8%?
All of this is the result of natural cycles of innovation, which favor the entrepreneurs and investors who take the most risks in periods of rapid change, and the emergence into the mainstream of new technologies (like in the early 1900s and from 1994 – 2008).
The inevitable shake-out that follows during the Economic Winter Season reverses that trend, reducing the inequality and bringing the middle class back.
So clearly it’s better to objectively study these more natural and fundamental cycles, and NOT the politics of “reaction” against them.
Even during boom times, when there are strong bull markets, there are always major corrections… like we saw in 1987, between 2000 and 2002, and from 2008 into early 2009.
In longer-term bear markets, there are strong rallies… like those we saw from late 1932 into early 1937, and early 2009 into early 2014.
It’s interesting to note that, since the Industrial Revolution in the late 1870s, longer-term bull markets have outweighed bear markets by about 2:1, which has compounded into the greatest bull market bubble in modern history.
But the longer we boom, the more complacent businesses, investors, and governments get. That sets us up for greater debt and asset bubbles, which become extreme… and ultimately crash and burn.
Stability leads to instability and visa-versa.
The longer and higher we boom, the greater and faster we bust. This was Minsky’s great thesis in the 1970s, and I believe he was much wiser than Keynes in the 1930s.
Keynes sowed the seeds of governments stimulating to offset downturns in the private sector. But it was the Federal Reserve that started stimulating to prevent downturns. In so doing, it created a greater period of stability, which in turn created the extreme period of instability we’ve lived through since late 2007.
In fact, the greatest depression in U.S. history followed the creation of the Fed in 1913. Its efforts to reduce volatility in the economy only created greater imbalances and hence the bubble of the 1920s and the greater bust of the 1930s.
Mark my words: The greatest bust since the 1930s is what we have to look forward to in the next six to 10 years!
The truth is that our economy thrives from the play of opposites. This is what creates energy and innovation, just like the positive and negative poles of a battery, or like men and women.
It’s not about being pro male or female… or pro republican or democratic… pro bull or bear… or even pro inequality or equality.
It’s about objectively understanding the fundamentals at play… that the battle between the opposites creates innovation and produces creative destruction. Without the ups AND downs, making money in the markets would be impossible… growing your wealth would be impossible.
What I am is pro innovation and progress.
It’s a clear, exponential, long-term trend that brings healthy payoffs to the golden goose of free market capitalism… if and when governments allow it to happen. They’re not allowing this trend to unfold at present, and that doesn’t bode well!
What we do here at Dent Research is remain objective. We help guide you through the inevitable cycles without bias, so you can survive and prosper regardless.
So, listen to us on economic cycles and trends, not the politicians, or media, or economists, or analysts. They’re almost always biased… never objective… They have too much at stake in the status quo.
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