The Case For Market Volatility

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Signs of Struggle
With an economy which generates almost 18 trillion (US) dollars of goods and services, the European Union is the largest economy in the world.  In the video, Larry Berman gives the litany of problems facing that economy, and consequently, the world economy, as well.  The level of European debt, demographics, and fiscal austerity all add up to a struggling economy and higher than usual stock market volatility for a very long period of time to come.

Volatility; Not Demand
Sovereign debt levels world wide mean political and economic volatility unlike anything we have seen in generations. All this, just at the time the Baby Boomers are beginning to ease back on their spending as their need for housing, and everything that facilitates going to work every day decreases.

New Paradigm
We have just experienced the peak of a period of economic growth unlike anything the world has ever seen.  The engines are low on fuel.  I hate to be the bearer of bad news, but we are not going to see the markets return to all time highs (at least not new highs after adjusting for inflation).  Still, the financial services industry continues their steadfast and unwavering support for the Buy and Hold approach despite the fact it makes a better marketing strategy than it does an effective portfolio management strategy.  As long as they receive sufficient participation, they aren't going to be the ones to tell us the bad news, let alone admit the hoax they have funded all of these years at their clients' expense.

The alternative to Buy and Hold?  Buy lower, and sell higher.  What a concept!

Have you, or are you making changes to your approach?

Berman's Call - Consumer Credit

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The major question remains - will the spending we saw during Black Friday and Cyber Monday account for the bulk of consumer spending over the Christmas season?  In this video, Larry Berman talks about the enormous growth in consumer credit relative to the increase in the U.S. population.  Since the 1960's the average annual population increase has been roughly one percent.  The average increase in consumer credit has been eight times that - much faster than the rise in incomes.

Consumer credit is now declining.  While the great recession, and unemployment are big reasons for the decline, much of it can also be explained by demographics.  The average U.S. baby boomer owes a lot of money and is now at the age where they need a whole lot less stuff.  Their children have grown up, and they are past their peak spending years as they start to position for retirement (whatever form that takes).

Combine that with the need for governments and financial institutions to deleverage, and one has to wonder what the next catalyst to growth will be.  We have a huge Gen-Y gang just around the corner, but they are probably a decade away from filling the large, expensive shoes of the baby boomers.  I keep hearing about all that money on corporate balance sheets, but don't forget, the U.S. consumer accounts for about 70 percent of their economy.

What is your vote?  Are we going to see a big golden fourth quarter in retail in North America this year?