Exponential Trend Failure of the 21st Century (Musical Tribute)

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Gongol.com: December 25, 2012

Fear and panic have chased people out of the stock market for no sensible reason. - Gongol.com

Don't get me wrong. I enjoy reading what Brian Gongol has to say. I visit his website often. The "no sensible reason" argument is a bit difficult to stomach though. Not one sensible reason? Not one? Seriously? I'll certainly give it a shot. Let's talk about Japan.

In hindsight, Japan's investors certainly haven't felt that their stock market was risk free even over the long-term. Note what's happened to their stock market since the early 1990s. That's when their housing bubble popped. They've replaced much of that prosperity with excess government debt. Sound familiar? How did that work out for them so far? How will it work out for them in the future?

The President plans to appoint the co-chief investment officer of Pimco to chair a global development council. Pimco isn't exactly a sunshine-and-lollipops kind of operation. They're the ones who talk about "the new normal", which looks to a future of low returns and high levels of regulation. - Gongol.com

I became a permabear in 2004. I was and am a strong believer the "new normal" theory. The 5 Charts I Shared with My Tax Preparer sum up my reasoning. The old normal's math is absolutely unsustainable. Exponential growth is *always* doomed to failure (think the end stages of a locust swarm). That's just basic math.

In my opinion, those who think we're going to rocket back to the old normal exponential growth curve (as seen in the red trend line of the chart above) are going to find themselves in a world of ignorant pain. I would bet every last penny of my nest egg that it is not going to happen.

Keep in mind that I'm generally not known for taking excessive risks. I would definitely make the bet though. I wouldn't even need favorable odds. Bet it all to win 10%? Absolutely. There will be no economic rocket. There will be no satellite of economic love. Mere words cannot adequately express how strong my opinion is on this. The party ended in 2000. All we can do now is adapt to the new reality. Sigh.



Source Data:
St. Louis Fed: Real DJIA (November 2012 Dollars)