Blogs & Comment

The Great Reflation: J. Anthony Boeckh

I am reading J. Anthony Boeckhs book, The Great Reflation (2010). Mr. Boeckh was chairman and editor-in-chief from 1968 to 2002 of BCA Publications, which publishes The Bank Credit Analystand other commentary. In my opinion, BCA has always provided some of the best macroeconomic and financial analysisto be found,and youll find more of the same in Boeckhs book.
The title, The Great Reflation, refers to the U.S. Governments attempt to pump new life into the economy after a near-death experience. It is an experiment never before attempted and it will have consequences unlike anything before, writes Boeckh. What a thought: we are all part of a great experiment and much of the outcome lies in the hands of people like Federal Reserve chairman Ben Bernanke and U.S. Treasury secretary Timothy Geithner. Whether we get to keep our jobs/houses or will be able to amass enough of a nest egg for the good life and a comfortable retirement depends a heck of a loton what theydo.
Boeckh believes the stimulus will be successful — but only temporarily. The Great Reflation effort will doubtless give the economy a temporary boost, just as the preceding one did [but] another inflation of asset prices wont last as long as the previous one for several reasons.
There are several reasons why it wontlast long. Private debt has been pushed to the limit; government debt will be pushed to the limit in a few more years; and the U.S. dollar, as the worlds main reserve currency, will not be able to withstand open-ended monetary and fiscal reflation; and finally, the world economy is too fragile to withstand another spike in energy and food prices.
So, a great deal of volatility and instability lies ahead as the economy lurches back and forth between inflation/asset bubbles on the one hand and deflation/asset busts on the other. When money is created on a large scale, it must go somewhere and have some major consequences, says Boeckh.
In a world of stability, buy-and-hold investment strategies can be very successful. In the financial world of the future, they will be an even bigger disaster than the past 10 years.
But dont count on Wall Street for guidance. Wall Street is basically a marketing machine, and it does not have investors well-being in mind, only profits and bonuses for employees and shareholders of the firms there.
Similarly, dont count on those with models or indicators fitted to back data. I can assure you, from a lot of experience that they always break down . Some approaches will work well in some periods, other approaches in other periods.
Experience with markets over a long period teaches humility.An eclectic approach that is based on common sense, strong logic and objective data, balanced by right-brain intuition and lots of curiosity, is what works best.
To be continued.