Future of the Market?

Interesting take on the future of the markets that is not just “Well, we haven’t had a bear market in 9 years.”



Interesting read:

Valuations as measured by trailing twelve month PE ratios have nearly doubled from 11.1X to 21.8X for the S&P 500 and 11.4X to 20.8X for the MSCI World Index.1

This P/E expansion means that not all the gain is from increased productivity and efficiency but from rising expectations which can change quickly. More interesting is the talk about deflation. In 1998 Gary Shilling wrote Deflation: Why it’s coming, whether it’s good or bad, and how it will affect your investments, business, and personal affairs. I read the book seven years ago and I didn’t pay much attention to it. I wrote:

“Deflation never happened. Maybe it was all the money the Fed pumped into the economy for problems that never happened like the Y2K or Millennium bug. Then we got the housing and real estate bubbleflation followed by a panic and more money pumping. With so much officious meddling how can you forecast anything? I guess we’ll just have to keep on flying by the seat of the pants.”


I read the book again a few months ago and this time I did pay attention because deflation has been happening, at least, inflation is nowhere to be seen despite the huge infusion of money into the world economies by central banks! According to accepted wisdom this money infusion should have set off inflation. One reason, in my view, why it didn’t happen is that economists don’t understand money but that discussion does not belong here. Catherine Wood talks about another reason, “Today, five innovation platforms are evolving at the same time, at a faster rate than in the late 1800’s.” The productivity generated by new technologies lowers costs and is therefore deflationary. The third major reason is deregulation and that includes the conversion of Red China to a capitalist economy. Walmart imported tons of Chinese deflation. National economies are not closed systems, specially not in a world as interconnected as it is today.

Partial list of Gary Shilling’s “Deflationary Forces” (14) - comments in [square brackets] are mine:

1.- End of Cold War led to global cuts in defense spending [Less waste]
6.- Technology cuts costs and promotes productivity
7.- Information via the Internet increases competition
8.- Mass distribution to consumers reduces costs and prices
9.- Ongoing deregulation cuts prices [Less government meddling with the economy]
10.- Global sourcing of goods and services curtails costs
11.- The spreading of market economies increases global supply [Go China! Go India!]

There is considerable opposition to deregulation many calling it “shafting of the consumer by industry” but the long term effect is deflationary – lower cost for the consumer – but it is not free, it comes with added discomfort such as crowded airplanes and the loss of low productivity jobs – which eventually are replaced by new jobs.

These are the economic backdrop of the stock market but the economy and the stock market are not twins joined at the hip. Irrational exuberance happens. Beware.

Denny Schlesinger

Deflation: Why it’s coming, whether it’s good or bad, and how it will affect your investments, business, and personal affairs.



ARK investments have done quite well with their ETFs, ARKK and ARKW. Both have gained about 79% ytd, compared with both VGT and FDN at about 38%.


I just looked at these ARK funds, and while they hold stocks we respect like Nvidia and Splunk, they’re also holding Bitcoin (in the form of GBTC, which is trading at a very large markup to its NAV) and Tesla. So buy in at your own risk!