No Capitulation, No Cure
Join 1000's of Authors at StreetArticles Today!

For most economists and business leaders, the sum of all their fears would be a cataclysmic crash, much like 2008. Yet, it’s this kind of crash, or capitulation, which is what’s needed and ultimately leads to a true recovery. I’ve chosen the picture in this article purposefully, it’s a perfect example of how everyone thinks a crisis doesn’t lead to a recovery. In this analogy we have our answer for why we haven’t seen a true recovery since 2008, because that crash was halted by extraordinary monetary policy by all western governments, united in their resolve to stop the crash. By doing so, they also stopped the cure.

Since then, pundits, economists, and politicians have been filling the media and airwaves with unending messages of how we’re in a recovery. Year after year we’re told this, yet when we look around, we don’t see the signs. Sure, a few bits of good news here and there, but nothing befitting a true recovery. Lowering interest rates to all time lows will surely boost house prices and car sales, but this is not the stuff true recoveries are made of. Recoveries are true boom times, where all businesses take part, jobs are plentiful and people are happy. You don’t have to continually bash people over the head with news of how great the recovery is when there actually is one, it’s self evident.

The very fact that we need to be constantly told we’re in a recovery is in itself proof we are not.

With this in mind, let’s turn our attention to oil. The recent crash has been shocking to be sure, but again we’re watching another example of prevention of capitulation play out. This time the culprit is speculators, the first bounce in the price and suddenly everybody is a bull and thinking oil is going back to $100 any day now. So they pile on and keep the price from capitulating, but because the structural issues are not resolved, namely oversupply, the price cannot recover meaningfully. This is what we have playing out before our eyes currently. So long as oil remains above $40, there will not be a capitulation, or the capitulation will take much, much longer, and therefore we will endure far more damage as a result.

2008 scared the tar out of everyone, and now they’re hell bent on making sure it doesn’t happen again, but this only ensures we will fall that much harder the next time around, as we are acting like spoiled children who won’t take their medicine and be healed. The same goes for the rest of the economy, so many companies are in denial, refusing to admit they need to downsize, instead thinking they can grow their way out of their troubles. This theory is common among retailers and marketers, who have bought the bill of goods which says if you aren’t adding capacity, you’re going downhill. This belief leads to overexpansion, which in the US, has manifested in a multiple of 3-5X as many stores per human as anywhere else in the world. There will be consequences.

Up until the end of the 19th century, .01% GDP growth per year was the average, and we survived. Then, someone decided we needed to be growing 10% per year, or failing that, at least 5% per year. So, western nations made it their goal to do this, and succeeded for decades, but this kind of growth isn’t sustainable and is in excess of the earning capacity of the population. So, how did we do it? Debt of course. We borrowed our way to growth the past few decades. This goes for governments too, whose spending is considered part of GDP. This too is unsustainable and will end. But nobody wants it to end, because at this point, we have too much at stake, even a mere 10% contraction would wipe out trillions of wealth of the world, nevermind a full blown crash and 50% contraction. But, looking at a 100 year chart of GDP says that’s exactly what will happen. Mean reversion is a principle and it cannot be broken forever, it will have its day.

There was a time when everyone understood that pain leads to gain, but the only place you hear that now is in a gym. We’ve got a disease, and it can’t be cured by ignoring it or covering it up, we have to get it cured. I wish I could say I think that will happen, but looking at our leadership and the general population’s attitude, I don’t. I think the disease is going to either kill us or come darn close, enough to wake us up. I hope for the latter, but either way, this lesson must be learned.

Lastly, don’t expect oil prices to come back anytime soon. They can’t, because we won’t let them. Until the necessary sacrifices are made, there can be no recovery. This is common sense investing advice, or it used to be, before investing became more like gambling. On Vancouver Blogs I discuss foundational investing concept like this, as well as the latest in current events. No other Vancouver Blog covers macro events as in depth as this article does.


Street Talk

No comments present
You May Also Like
Outperforming the Investment Gurus
The stock market reflects changes in the economy filtered by the public’s perception of profitability. Unsophisticated investors tend to trade frequently in response to feelings of fear or greed. Unfortunately, acting on these emotions tends to result in losses. Market gurus attempt to capitalize on the hopes and fears of…
By: james siddall in  Investing  >  Retirement Planning   Mar 19, 2016  
0
  Likes: 1

How To Prevent Heron Theft
Herons are beautiful, majestic birds that have one major flaw. Herons love to feast on Koi, and where better then to find Koi then an unattended Koi pond or garden? When you first notice a Heron in your garden, you may not even think of these birds as a danger.…
By: Makowski Piotr Dariusz in  Investing  >  Retirement Planning   Mar 03, 2016  
0
  Likes: 1

Commodity Prices Have Crashed
There are a number of sure-fire ways to know the economy isn’t doing well. These are time tested, proven indicators. Among them, the price of commodities stands out as possibly the most reliable indicator, closely followed by dry goods shipping costs. When commodities are cheap, it’s because nobody wants to…
By:  in  Investing  >  Retirement Planning   Jan 02, 2015  
0
  Likes: 0

Your Transition to Retirement
Have you thought about your transition to retirement? Young or old you need to think about it. Young people need to plan for retirement and old people need to preserve their assets during retirement. I am not a financial advisor or retirement planner. I do want to tell you what…
By: John T Jones, Ph.D. in  Investing  >  Retirement Planning   Apr 21, 2011  
0
  Likes: 1

Setup Smsf - Establishing And Maintaining Superannuation Yourself
Planning ahead of time and age, one requires the best resources to garner requisite knowledge with respect to saving for a comfortable retirement stage. In Australia, individual belonging to the managerial working class have a shrewd understanding of the financial market. A white collar working professional is aware of the…
By: Redwood Advisory in  Investing  >  Retirement Planning   Jan 02, 2014  
0
  Likes: 0

Smsf - A Means for A Financially Secured Life After Retirement
When looking for a means to ensure that your retirement period is secured with a steady source of income, you will need to look for an option not only yields high returns on your long term investments but grants a level of independence in decision making pertaining to superannuation investments.…
By: Redwood Advisory in  Investing  >  Retirement Planning   Jan 15, 2014  
0
  Likes: 0

USA is Not An Island
The global economy is slowing, deflation is setting in everywhere. Emerging economies have lost their momentum and are falling into recession, while many advanced economies aren’t doing much better. Most countries are in too much debt, some are in far, far too much debt, and have no hope of ever…
By:  in  Investing  >  Retirement Planning   Mar 02, 2015  
0
  Likes: 0

This is Not 2008 Again
With the recent crash in commodities prices, including everything from corn to copper, to crude oil, many are starting to wonder if we’re seeing a repeat of 2008. In Alberta, they rely heavily on oil for the province’s revenues and economy, and have seen many downturns over the past 40…
By:  in  Investing  >  Retirement Planning   Mar 02, 2015  
0
  Likes: 0

The Global Reset
Michael Yates is a financial advisor specializing in alternative investments and extreme fiduciary duty. His company Have you heard of the reset which the International Monetary Fund has planned for the world’s financial system? Likely you haven’t, but that’s ok, most people haven’t. If this weren’t the head of the…
By:  in  Investing  >  Retirement Planning   Jan 01, 2015  
0
  Likes: 0

Wealth Management
There’s an old saying in golf that says, “it’s not how good your best shots are That matters, it’s how bad your worst shots are.” The point is that you can make great shots, but if your bad shots are too bad, you’ll still be a bad golfer. This holds…
By:  in  Investing  >  Retirement Planning   Jan 07, 2015  
0
  Likes: 0

Canadian Real Estate Crash
For 5 years running, predictions of a crash in Canadian real estate have failed to materialize. Industry experts with decades of experience have been baffled by the staying power of Canada’s housing market, as it’s now the world’s most overpriced real estate, using comparative income levels as a measure. Not…
By:  in  Investing  >  Retirement Planning   Dec 30, 2014  
0
  Likes: 0

Best Gold Investment
There are many forms of gold available to the consumer/investor. Gold is present in jewelry, coins, bullion, with very small quantities found in industry, electronics,medicine, and some food and drink.  So what form is the best gold investment? Let's explore the three main forms of gold. Jewelry The purest form…
By: Terri, RDH in  Investing  >  Retirement Planning   Sep 27, 2011  
0
  Likes: 0

The Baby Boomer Retirement Crisis
What is the Baby Boomer retirement crisis you ask? well it’s like this. There are 10,000 Baby Boomers retiring every single day, and this is just the start of things to come. All these people have reached retirement age of 65 and will now be joining the ranks of folks…
By: Dave Swanson in  Investing  >  Retirement Planning   Feb 23, 2014  
0
  Likes: 0

Is Gold A Good Investment in 2011
Investing in 2011? Wow, is that a scary concept. Growing up, I remember my parents putting all kinds of money aside in retirement and 401K plans. When you are young it is hard to understand the concept of investing. Why did they put all of this money in some plan…
By: Terri, RDH in  Investing  >  Retirement Planning   Sep 26, 2011  
0
  Likes: 0

3 Key Strategies to Use When Trading Stock Options
One of the most critical, and I mean critical things to be aware of when trading options is choosing the right underlying stock for that particular option strategy. In a previous article I covered selling naked puts and covered calls. Now I'm going to talk about three strategies to use…
By: Dale K Poyser in  Investing  >  Retirement Planning   Sep 28, 2011  
4
  Likes: 2

Article Views: 968    Report this Article