The Impact of Bubbles – Week 7

Negative Force – The Fed Will Ultimately Cause a Recession:

Recessions are a normal stage of the economic and business cycle. It is the way that excesses are corrected. The first three recessions I experienced in my career were less difficult than The Great Recession of 2008-2009. None were pleasant.

The definition of a recession is when the economy experiences two consecutive quarters of negative growth. However, the pain of a recession lingers for longer than six months.

The timing of the next recession will determine its severity. The earlier it occurs the greater the number of bubbles mentioned earlier will burst. If the “Up” economy lasts long enough, some of the bubbles in our economy may be corrected by positive economic growth.

But by definition, during a recession it is difficult to sell assets. Could this phase be catastrophic? Yes, if it occurs in conjunction with the global tapering of QE. Hopefully, the US will muddle through. But to my knowledge in economic history:

  1. Every previous Quantitative Easing (QE) by a government ended in abrupt economic disaster;
  2. None of the previous QE experiences were anywhere near the size of this global QE event.

The key point to remember is that recessions are a great time to buy assets but an absolutely horrible time to try to sell… anything. Never bet against The Fed.

It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is land.