zero sum or better, poilarisation or optimism, what are the beliefs?

 Marieke Stellinga tries to explain (NRC November 22) with theory of Stantcheva (Tinbergen lecture) what is going on in economics with the belief that economics is a zero sum game or not. 

I see this thinking has many merits and explains polarisation and maybe other cycles.

Before 1800 everybody believed it is a zero sum game. Malthus learned that there were periods with not enough people and then there were too many (nature corrected this). You didn't get richer but new technology caused more people could live without starving. After 1800 the Industrial Revolution learned you got richer every generation.

But now, many people don't believe anymore that they will get richer than their parents. It is according to many because of immigrants (they take the jobs and cause lower wages for me) and because babyboomers are awful (so houses are unaffordable and retrirement / care systems are untenable). 

They know, there is still technological progress, even more since internet and more wil arrive because of AI, but it will only mean higher equity prices and not higher real income for the middle class (as is the case since 1971). 

We give more and more to immigrants and foreign countries and because it is a zero sum game less is left for the white guy.. It is not fair and fairness must be restored by politicians. 

Of course you still see progress in the official numbers in the US and most western countries and emerging countries. But the zero sum thinking produces a logic like that. It is sometimes clearly wrong according to economists, but it explains beliefs and people vote according to these beliefs.  Is the new economy a danger for me, a risk for my job/ community? Then it must change even when it is good for economic growth. 

So for example tariffs can be supported when they are judged to be fair and less threatening for the voter's job.It creates inefficiencies but they are not judged important enough (not always of course, economists stubbornly believe it creates inefficient companies).

Inflation is also a theat for jobs and is judged to be not fair for poor people (they get more problems than rich people) and can threaten real wages. It can lead to beliefs that interest rates have to go down to get less inflation because denbts get cheaper then. The FED believes otherwise and economists still support that thinking for 100%, but doubts are arising. Bring higher rates really inflation down? That is not clear when it creates inefficiencies and higher governement spending. 

always buy, never sell

Always buy, never sell was the winning advice for buying Japanese equities for decades, until 1990. Until it failed for decades.

Now it is called FOMO, based on TACO Trump and AI nowadays. Buy the dip. Already for decades. 

As usual gives Ryan Detrick his until now correctly long term bullish view on equities

Peter Brandt and Gerard ter Veer showed it more like this. 

Yes, on the long run equities go up, but it can take longer than you can stand before you make profits

Maybe you have to buy gold. The chart above is a bit old, with gold prices above $ 120 000 per kilo now. But still, you see a pretty constant price of a house in gold while inflation has been tremendouw. So always buy gold, maybe. 

where are we: 1998/99, 2012/13 or 1947?

1998/1999 is the most popular. You have a tech bubble, now in AI, then in internet. There were some major disturbances that didn't hurt the US economy. Then it was the Asia/Russia crisis plus a hedge fund too big to fail that had to be rescued by the FED. Now we have the Trump tariffs and sudden immigration stops, problems in Europe (france, Germany, war Ukraine). The tariffs are biting less than feared because of tremendous AI spending, investments that are hugely profitable for a lot of companies with a high weight in the US indices and propping up economic growth wthc. 1%. Just like after 1995 monetary policy is more ample than was expected given inflation and economic growth. .

Ryan Detrick thinks 2012

It is about the same story after 2009: big economic problems in Europe that didn't produce low growth in the US. Technology was marching on, the recovery of the blow in 2008/9 had not yet ended.

It could also be like 1946/1948, a very disappointing period for equities. After the end of WWII hopes were high: the soldiers could now do profitable work. But that was with a lot of disappoitments: soldiers were not easy to transition to normal workers. The mood was one of one had expected much more. That didn't last long and a golden age started in the fifties and sixties. 

The big problem is that AI could produce a same disappointment like 1946/1948 with some other disturbances like more inflation than expected, a huge debt crisis, climate problems, war etc. This could produce a Chaotic Downturn scenario like 1973/1975 that could start in 2027/2028 (a bit later than in our book, because the good times of equities in real terms lasted longer, at least to 2021 and not 2018.

No guarantee of cours.

four year cycle warning but this time is different

 Jurrien Timber

The median bull market lasts about 30 months and produces a gain of 90%. The current one is up 88% in 35 months

That is what normally happens in a four year cycle of equities. The new cycle started at the end of 2022 and after about 30 months you get the down part of the cycle. In the first part you have only minor corrections and buy the dip because of FOMO, is the best thing to do. Normally the FED causes corrections and the bear markets. Corrections beacause the FED is not as nice as thought or is causing a recession. 

This time the FED doesn't want to cause a recession and will start easing again. Several rate cuts are now likely (independent of Trump). Inflation is going up because of Trump, but not much because rents are slowing and the oil price declining. The money growth is normal and not causing extra inflation. It is only those beautiful tariffs of Trump that are causing goods inflation. service inflation ex housing is pretty stable, a bit rising but when the economy further slows down the sevrice inflation probably will also slow down a bit despite  goods inflation. 

The profit taxations are going up for the third quarter and that is unusual. Nominal GDP growth seems to be reasonable, so not many revenue warnings (yet). And OBBA will arrive. If OBBA is arriving in time and helping consumption enough a recession probably will be avoided. This normally means a further rising market on FED cuts and fiscal stimulation.

So maybe this time is different and no bear market will arrive soon.

Blankfein also warns for a bear market based on credit risk, leverage and too low credit spreads. But he still is 100% in equities.. 

the systems do'nt work anymore in the US, China, Germany

 Voters are angry in many countries and that is because the system is no longer working well for them, at least in their eyes. So populism has become popular.

In the US won Trump because he saw that the deplorables had to be heard. Manufacturing left the rustbelt and meant no longer good jobs for the white man in the household. The trade deficit has become way too high, the foreigners are exploiting the US. The pathetic clappers in Europe do'nt pay for defense, the US will defend Europe. Europe must pay now. The norms and values had deteriorated because of immigrants and woke behaviour (it has become difficult for whites to go to premiums universities because of discrimination). So he promised to change that with a return to christian values, even while he himself never has been a good example of ethical behaviour. He is not a believer in battling climate change. Foreigners are evil, so he believed in taxing foreigners, high tariffs even while almost all economists believe it is bad end has proven many times to be bad. Manufacturing has declined steadily from 40% of GDP to 7% and the trend probably will continue, even while Trump is fighting it. The US has no longer a mentality to start capital intensive manufacturing. Venture capital and private equity only give credits to non capital intensive companies, services. The US has no longer the engeneers to create new manufacturing.Youth unempoyment under academics is starting to become a problem.

In China the state companies can no longer be funded enough with selling land. They continue to produce too much with subsidies. They make losses and the debts are rising fast and are becoming gigantuously. The housing sector is way too high. It is more than 25% of GDP and it should be less than 15%  China produces way too much and consumption is too low. Producing even more is creating problems, the rest of the world doesn't want to stop manufacturing. Producing more and more with fast  growing debts is not sustainable.Demographics are horrible and the labour market is no longer growing. The 20 million farmers that started to work in manufacturing is a thing of the past and no longer a motor for growth. The hukou system is a big problem. Youth unemployment is way too hiigh, also under young academics (a recipe for revolutions).

Germany had a model of exporting more to China, importing cheap energy from Russia. Closing nuclear plants. Immigrants are becoming a problem. The subsidies to the former DDR are a problem. The former DDR is still way poorer and AfD is by far the biggest political party now in the polls.Regulation has become excessive. . 

UK had the Brexit. Outside of London average income is lower than Poland and most of Europe.

back in 2025

 I'm too lazy for updating this blog. Now I want to give it a new try. The forecast of the real S&P500 in 2009 was better than  everybody expected. The high of the cycle was later than indicated because of the tremendous monetary and fiscal stimulus after COVID. Since then we have seen a lot more inflation than before. So in real terms the S&P500 is not doing very well. But it is doing much better than indicated because of the Magnificent 7.

After COVID you see some problems for the market to continue rising a lot in real terms. Inflation is structurally higher than before 2020.The monetary policy is no longer as favorable as before. QE is abandoned for the time being. Labor is scarce. Globalisation has changed into deglobalisation. Government policies are less favorable for equities (tariffs, deficits too high, protection, more defense spending, climate change).

The shifting of the powers is still not in favor of Labor. Populist policies are still helping Business and fighting socialism. So profit margins are allowed to be very high.

So, profit margins especially in tech are high. AI is helping productivity. So things are better than thought in 2009. 

In 2009: expectations very low, .monetary policy very easy (inflation was too low and danger of deflation) and getting more easy, profit margins rising.

In 2025 is inflation a problem, not yet a big problem, but enough to expect less monetary easing despite populism. Demographics are not favorable. Expectations are high, profit margins are not expecte to go higher. Populism can cause a Chaotic Destruction Scenario. Maybe 2028 and not 2024/2026 as expected in 2009. AI and the later top are causing a later falli nto the Chaotic Downturn Scenario.