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It's an earning recession!

I learned two new concepts this week. The first one: we are in an earning recession, which means that the average of the most powerful public US companies (SPX again!) have seen their profit go down for two quarters in a row. The second one: the FED mandate, which until now was known to be "to promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates" seems to have wobbled. The FED did lower the interest rates (by 0.25%) this week, announcing that it did so because of the big companies earning recession... Hello???

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For over a decade now, the ECB has been "very accommodating". So much that the Euro has sunk by more than 25% against the dollar over this period. As a consequence, European companies exporting in USD have slowly become de-facto kind of 25% more competitive than their US counterparts. No wonder the King of USA has a problem with this (and China too, but that's another story...).

Therefore, despite the unemployment being at the lowest for a decade, the prices being stable, inflation totally within accepted range, and long term interest rates being historically very low (note, that's our FED mandate!), well the FED, under pressure by the King, decided to lower the interest rate. And as good gesture, also to print up to $75b a day for 3 weeks. Last week, the ECB decided to print $20b a month. Well, you could call this $75b/day a nuke in the whirlpool (inspired from an idea of the King when trying to find solutions to the devastating effects of hurricanes on the US east coast).

So here we are again. Either this is a "race to the bottom" competition to devalue the money (Euro, Dollar or whatever else) and make their respective economy more competitive (short-term is covered, who cares about the long-term?), or there is something very nasty brewing which we do not know yet, but they know about and the powerful Central Banks "print" crazy amounts of money in anticipation of the coming armagedon...

If it's the first case, my personal take on this is that we risk high inflation at some point in the next decade. They cannot surely continue to print and devalue without side effects. If it's the second case, we will all need insurance against armagedon and various scenarios between deflation and stagflation. I continue to think that both cases favour investing in assets offering protection against inflation and recession, such as Gold and Silver. At least for 18-36 months, until we see clearer.

I also see case 1 as being favorable to property prices (where the invisible man comes back with a vengeance), but case 2 is favorable to property slumps. So until we know better, I will personally refrain making any new property investment in places subject to these opposite forces.

To your journey!

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