Zeitgeist circa 1968. Guns and butter galore. Only one guy in the bank foresees the approaching tidal wave of inflation, then the Kid signs on and there are two. By 1969 a few more voices also cry out, but elsewhere in the financial community.
Zeitgeist 2010. Guns and butter déjà vu. The guy is long dead, but the Kid spots a gathering storm, and The NY Times cries out thrice in one week.
Valued readers, what happened then could happen here. Short-sellers, having long spotted this ginormous opportunity, are simply waiting on a Crime Lord for the day and the hour. When has always been impossible for outsiders to forecast because the mob strikes way too early. Their attacks come without warning, overwhelm demand, and continue on and on and on until prices have been crippled, pressuring, in this case, all financial assets. As in any inflationary scenario, commodity prices rally.
(Stocks tied more to commodity prices than interest rates outperform. These included integrated oil stocks and mining shares back in the 70’s. When that one was all over, valuations returned to normal, and investors riding blue chips, though badly bruised in the bear attack, got rewarded for their perseverance. Long term bondholders eventually saw their purchasing power cut to about one third of 1968 levels, while the owner of dividend-paying, high-quality stocks had his income tripled.)
All it would take for us to return to the 70’s, or worse, is continued dysfunction over Government spending and tax revenues on top of a business turnaround placing typically huge demands on the credit markets now in anticipation of big returns later.
Lets hope Washington acts first. And soon.
