There are some good graphs and quotes from Ken Rogoff and Carmen Reinhart’s book in the latest Hussman piece linked below. Some things in this piece reminded me of something Howard Marks wrote in his memo entitled The Long View: “In my opinion, there are two key concepts that investors must master: value and cycles.” As you may have noticed, I’ve posted more things this year on the blog that relate to the cycle side of investing than I have in the past – and much of that has to do with the insight in that quote from Mr. Marks, along with some holes I noticed in my own philosophy as things unfolded during the current financial/credit crisis.
Aside from the likelihood of further credit losses, my primary macroeconomic concern at present is the likelihood of far larger deficits and eventually, inflation, than investors appear to anticipate. As I've noted before, the inflation issue is most likely several years out, because over the shorter run, fresh credit difficulties are likely to boost “safe haven” demand for default-free
“The marketplace is suggesting that there's not going to be a lot of inflation in the near term. During the height of the crisis the alternatives to dollar assets were not there. It wasn't irrational, but it was lack of alternatives. What concerns me most about inflation is not something that is imminent. The inflation question becomes more pressing in a 5-10 year time horizon—and it's not 5 years from now, it's 5 years from where the crisis started, which was two years ago. If we had a history of defaults, like in