Home > Anarchy, Investment tips, Mainstream failure > We are doomed with idiots like this in charge of our investments

We are doomed with idiots like this in charge of our investments

I am so frightened when I read this kind of stuff:

“Businesses that reacted to the credit freeze by cutting production, deferring capital spending and slashing employment are starting to reverse their decisions. Consumer spending is strengthening as savings rates stabilise and income picks up. A rebound in tax revenues should help to put government debt on a firmer footing without the need for too much fiscal retrenchment. Meanwhile, ample spare capacity should keep inflation low and monetary policy loose. This is a positive backdrop for risky assets and it seems likely we have embarked on a multi-year bull market in stocks.

“It does not automatically follow that another financial crisis is in the making. A recovery in asset prices is part of the solution to debt-deflation and a sharp rise is to be expected after a sharp decline. It would be a mistake to ask central banks to decide the ”correct” market level. Any investor will tell you it is not easy to recognise a bubble. It is, however, easy to recognise leverage and that is something central banks are well-placed to do.

“We are not doomed to repeat history. It is hard to alter human nature but regulatory failure can be addressed. We need effective oversight of leverage in the financial system. That’s all.”

Trevor Greetham is Director of Asset Allocation at Fidelity International  (in Ft.com)

“A recovery in asset prices is part of the solution to debt-deflation and a sharp rise is to be expected after a sharp decline.”

Err…no.  As I’ve said a million times before, you have to choose: Maintain high asset prices (that would otherwise fall) OR stimulate economic activity.  You can’t have both.

High asset prices kill economic activity by messing with the price mechanism and causing investors to contract their spending and borrowing plans due to lack of profitable investment opportunities.  Low asset prices mean FUTURE profits and therefore CURRENT economic activity.  High asset prices mean FUTURE losses and therefore CURRENT stagnation.

It’s a worry that a representative of one of the biggest investment houses in the world would come out with this kind of rubbish.  But then, how else do you explain the current financial mess other than with the realisation that some very stupid people made it to the top of the tree.  And their stupidity means will all suffer.

Sad.

 

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