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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 71071  
Subject: Re: Deflation/Inflation Are Coming...Your Portfo Date: 8/28/2011 9:54 PM
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I have just finished reading Mauldin's book called "Endgame". It is chalked full of factual charts and commentary on the worldwide risks that face practically every country to varying degrees.

Is this the same Mauldin who has been a perma bear since, well, practically forever? The guy who missed the 80% run up in the market after 2008? The guy who predicted a down year in 2005, while the market actually went up? The guy who predicted a 10% down year in 2006 while the market went up 15%? The guy who predicted a minor recession in 2007 (a 'goldilocks recession', I think he called it). The guy who in 2008 said "soft landing" and "a minor recession"?

I'm wondering if he had the same "factual charts and commentary" back then, or what he just winging it? And say, I hear Paul Krugman has a book with all kinds of factual charts and commentary. Should I believe him too?

Interestingly, he argues that the most important action is to Reduce Government Spending.........yes to those extremists liberals out there, whether the tea party knows the benefits behind their "obstructionist" behavior or not, this demand to reduce government spending is likely the seminal event to save us while "saving is still possible".

This is precisely the advice that Herbert Hoover got in 1932, and precisely the advice that caused FDR to throttle down spending in 1936. Both times it was a disaster. This time it might be right, but there's a reasonable chance it's not.

This is not a party issue so stop the obfuscations and blame game tactics regardless or your party affiliation.......it is a country/nation issue! It is based on ECONOMIC principles.

No, it is based on one version of economic principles. We can look to England for how well an austerity plan is working, and put simply, it's not. It's throwing their economy backwards. These sorts of things are called "evidence", which is different than claiming "economic principles" without evidence.

We can be fair to Bush that he didn't create this mess as Obama keeps blaming. We can also be fair to Obama that he inherited decades of bad decisions. But where we cannot be complicit is that our present political leaders have approached this financial mess with skill and prowess.

Let's be clear about a couple of things. Bush inherited a deficit, but the budget was in surplus. Sadly, we went back into deficit and began spending with abandon. Even more sadly, most of that additional spending was long-lived, even structural, which is to say once it starts it is exceptionally hard to stop. Iraq. Afghanistan. Medicare Part D. Those are the gifts which keep on giving. TARP was a one time event (OK, OK, a two time event) which cost, but then stops.

Obama's spending on the GM bailout, for instance, happened once. The Chrysler bailout: once. The second round of bank bailout: once. You see the difference? Obama is still spending Medicare Part D, even though he had nothing to do with it. I suppose he might try to stop it, but who is going to go with him on that unsinkable ocean liner, the Republicans who passed it? The Democrats who would get killed for taking away granny's prescriptions? The Tea Partiers who would quickly find out how many constituents really really like that spending, they just don't like that other spending.

Unfortunately for us all, the deficit which Bush inherited also had this minor consequence called "interest", and as the spending of that administration increased, so did the interest. Likewise Obama. So yes, this is not sustainable forever, but it's unclear that it's so dire that we all need to run and hide under the bed. During World War II our debt to GDP ratio was nearly half again higher than it is today, and we seem to have come out of that OK.

Mauldin makes solid arguments that we will see/are seeing deflation that will be followed by inflation.......it is inevitable and unavoidable.

No, no it's really not. It didn't happen in 1946. It hasn't happened in Japan. The bond vigilantes have been screaming about hyperinflation for years now, and the long bond is what, around 2%?

How will you manage your portfolio henceforth?

At this point, and given the track record of nearly everyone, I would counsel do nothing, don't try to guess which way the wind will be coming from tomorrow or whether it will rain, because we don't have enough information, and even if we did we probably don't have the correct model to use that information wisely. We're like the indian medicine man who knows it's going to rain eventually, and if I just keep up this strange dance maybe that will help.

Don't go running off in some silly direction because of one guy's book, particularly one guy who has been so spectacularly wrong for the past decade. Raise your antenna, watch carefully, and continue doing what you know how to do best. If you are a value investor, play that game until signals clearly point elsewhere. If you are a momentum investor, likewise. If you're in new markets, well that is your area of expertise, not macroeconomic theory and deflation/inflation scenarios. Personally I'm in dividend stocks, which is where I intend to stay until the storm blows over, or until there is clear sign of distress elsewhere.

I happily acknowledge that by that time the signals might be clear to everyone else and I may get trampeded at the door, but that is a risk I take. I think it's a lot less risk than trying to guess the outcome of a game so complex that literally no one on the planet understands all the rules, without sufficient background to even make a well educated guess, and where my dart would be as likely to hit "go" as "stop".

In short, play to your strength, up until the moment you find it not working. Don't try to guess what will happen in 2012, 2013, or 2020, because you don't know and never will until that time arrives. I can assure you John Mauldin doesn't know either, but I'm sure he will sell some books by pretending he does.
 
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