Scientists have found that
although traumatic experiences such as losing a loved one can be
psychologically damaging, small amounts of trauma can make us more resilient.
Researcher at the University at Buffalo, said: “A lot of ideas that
seem like common sense aren’t supported by scientific evidence. Indeed, a lot
of solid psychology research shows that having miserable life experiences is
bad for you. In fact, some research has suggested that the best way to go
through life is having nothing ever happen to you. But not only is that
unrealistic, it’s not necessarily healthy”’ He suggested that those who go through difficult experiences are given
a chance to develop an ability to cope with such situations in the future. “The
idea is that negative life experiences can toughen people, making them better able
to manage subsequent difficulties,” he said.
The year has started with a bang
literally. The Swiss broke the peg to the Euro this week which Goldman Sachs
CFO referred as a 20-standard deviation event. A 7-standard deviation event
happens every 390 billion years! Well, given their reputation, I am sure Goldman
VAR models can handle 20-standard deviation predictions…Gold has been on a
literal tear since the beginning of the year moving up from under $1,200 levels
to $1,280 levels. Copper the mother of all industrial metals has corrected from
$6,400 to $5,600 YTD and oil slide continued as if gravity had seized it. And,
none of this will kill anyone but surely create sufficient misery for many.
The actions which the financial
crises has shaped like the US and European easing and the Chinese debt
expansion which essentially bought time and created “aggregate demand” have
turned a full circle. I expect the fundamental disconnects which existed prior
to the crises and those formed by the crises to manifest themselves in the next
5-7 years:
- China due to its massive debt creation and lack of domestic consumption will confront Japan-style stagnation or a hard landing in the next few years causing commodity country severe hardships. With the Euro and Yen pressing down and wages expanding, China becomes more and more un-competitive;
- Japan is conducting the mother of all experiments where BOJ will soon be the owner of most of government debt. Consumer wealth will decline as the Yen declines but population decline and lack of global demand will make the experiment all the more difficult;
- European Union may experience its first exit in Greece post the 25 Jan election results but that will only be the beginning of the consequences of the fundamental problem of the union - How can countries with differing fiscal and rules have the same monetary policy? I have written in the past how this is more a political enterprise than economic, consequently economic outcomes will be determined by political events;
- In this mix as the USD strengthens, capital flows will become more constrained.
………That which does not kill us makes us stronger………
