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Years of Magical Thinking: Our World After the Banking Crisis


A year-end review reveals how long "bad" has been "good," and considers what 2011 holds for the economy.

No pundits I know, when offering forecasts for the next year, ever bother to put in front of their readers what they said a year earlier. This is now my fourth year of trying to anticipate "themes" for the year ahead for Minyanville. And at the risk of embarrassing myself, here is what I've offered to date:

At the end of 2007, I wrote The Courage to Choose, suggesting that our Age of Aspiration was ending and offering that "with its conclusion, we must, for the first time in almost a generation, begin to reconcile our wants with our means. We must choose what to do without, rather than what more to do with."

At the end of 2008, I wrote The No-No Years, proposing that "if our most recent economic cycle could be characterized as the Go-Go Years, then, by applying Newton's Law … what we now face are the No-No Years: The years where less is best." I even went so far as to suggest that we would see "corporations hoard cash"; that "those most able to borrow money simply won't" and that demand for "public transportation and public education will explode as the economy demands 'just-enough' solutions."

And at this time last year, I wrote 2010: The Robin Hood Economy, offering that there would be a "battle ahead which attempts to reconcile the interests of individuals versus large corporations; large banks versus small; current and former state and local municipal employees versus municipal bond holders; and dare I suggest 'developed' versus 'developing' nations. The 'faced' versus the 'faceless.'"

Well here we are at the end of 2010 -- three years after I first suggested that "austerity" would replace "aspiration" -- and the word of the year according to Merriam Webster is "austerity." Finally! (Although I must note that it is only because of "austerity" in Europe, not here at home.)

And who knew that two years later, "corporate cash hoarding" rather than signaling investment indifference, would instead become market-speak for "Buy this stock because there will be big special dividends ahead," or that within nine months the Robin Hood Economy would be espoused by Jim Cramer as a viable investment strategy where its was great that "instead of paying Wells Fargo (WFC), you're spending at TJX (TJX) and Ross Stores (ROST) and 'dressing for more' as Wells gets less."

As I have reviewed my prognostications, I would conclude that I had the right economic themes but the wrong human/market reaction and clearly the wrong timing. Never would I have I imagined that "bad" could be this "good" for this long.

In hindsight, I suppose, I should not have been surprised. It is human nature to deal with crises as "events" not "eras," and as we are now dealing with struggling political -- not just financial -- entities, how could there not be extraordinary measures involved. Clearly I underestimated the not-on-my-watch mindset of not just Washington, but capitals all over the world.

Still, when asked lately to characterize our post-banking crisis world, I have come to borrow the title from Joan Didion's book chronicling the year following the death of her husband, writer John Gregory Dunne, from a massive heart attack: The Year of Magical Thinking.
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Position in SPY, SH, and JPM.
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