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April 14, 2004

Din of the Inept
by John Mackenzie

In theory, our theories for forecasting are based primarily upon our perceptions. We conceptualize, and build functional norms in hard science we believe are practical.

These quantitative assessments typically preclude any real "value judgements" beyond the empirical results. My early training in economics was a hoot... "Ceteris Parabis", all things remain equal or constant as it were within the dynamics of economic models.

The struggle began right there. It was as if we were expected to avoid the oncoming collision by assuming if it were held "static", it did not matter.

Fast forward to our static assessment of debt. We embrace it as though it were some modern utopian plague, worthy of ever increasing consumption.

I find it remarkable people buy into the stability and strength of this recovery. It has been fueled by credit. And the results have been far less stellar than is being reported.

Economic expansion has been subdued by any measure.

Pricing power remains virtually non-existent in the New Economy.

Employment has deteriorated dramatically.

This is not a broad based macro recovery, it is merely the culmination of "Hope" and that is a useless investment strategy. Preservation of capital should be on the forefront of investors minds.

Our Central Bank has done little more than "bullhorn" it's own false economic paradigm. This annoys me to no end as balance and stability are a large part of the Federal Reserve's charter.

Personal consumption is not a valid metric to be employed in calculating anything but debt.

Recent conversations with several New Economy technology mavens suggests they've missed the larger point. Their share of GDP does not add up. The microchip has been around for 40 years. It has consistently managed to compound its very efficiency, thereby allowing "Hedonic adjustments" unparalleled in quantitative number fudging.

As much as the Industrial Revolution concentrated our economic landscape, the microchip has surpasses it in spades with a very simple, yet profound effect. And it is precisely the opposite of centralization witnessed over the prior century.

Far greater efficiencies are realized through faster and far more adaptable decentralized "processing". Multinational Corporations must view this with great concern as it threatens the very foundations they managed to centralize and command. This hierarchy is being threatened by more nimble and efficient decentralized entities.

We were brought together over the course of the previous century only to be blown apart once again by our own achievements. Perhaps this will be the new world order. I would embrace a return to "locality" which might very well involve becoming one's own Central Banker.

The precious metals complex is being taken out back again, slammed with a mountain of paper promise tickets gone bad. Although I don't expect it last very long, the retracement may continue to be sharp and deeper than most expect.

It is a gift in my opinion, another one bestowed upon us by the "Gods of Paper". Embrace it with both hands, but exercise both caution and patience. Your faith in real, honest money will be rewarded in spades.

In order to maintain this house of Hoyle, the government will be required to "Monetize" increasing amounts of "Promise Tickets", which are nothing more than debt masquerading as the wealth of a future generation gone horribly wrong.

The United States Treasury is staring down a very large re-financing of our debt, and the entire idea this week is to destroy "alternatives". Let's see how "please buy our paper" plays out. It is going to present a tremendous opportunity in the months and years to come.

John Mackenzie

John Mackenzie manages private capital - Email: m2jrmfl@bellsouth.net

Copyright © 2004-2005 John Mackenzie

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