An illuminating interview

We have mentioned the excellent economic analysis of professional economist Brian Wesbury many times before on the pages of this blog.

Today, Mr. Wesbury had an illuminating interview with Fox Business anchor Stuart Varney in which he lays out some of the arguments he has been making -- going all the way back to 2008 -- that the recession was the result of a financial panic, which resulted in a sudden halt in the velocity of money (the turnover of money in the system as it passes from one individual or business to another), and his prediction that the economy would see an equally sharp and rapid recovery once velocity returned to normal.

There have been many economic signs lately that indicate that this diagnosis was very accurate.

In the interview above, Mr. Wesbury makes another noteworthy point, beginning with interviewer Stuart Varney's question at about 2:13 into the video. Wesbury says:

"We have a window here of twelve to eighteen months. The Federal Reserve is very easy, it's accommodative, it's printing lots of money. The market-to-market accounting rules were changed, and velocity is coming back, and that means the stock market and the economy, I think, are going to outperform the consensus expectations. But when we get down the road -- twelve, eighteen, twenty-four months from now -- we're going to pay a price for this growth in government. It's going to hurt this economy later, but right now we have a window -- a calm in the middle of the storm, if you will -- where I think people who can stay optimistic can make lots of money."

Mr. Wesbury's identification of a near-term cause for optimism (the twelve- to eighteen-month "window" or "calm in the middle of the storm"), as well as his warning note about the dangers from "growth in government," are noteworthy for investors.

We have also sounded a note of warning about some of the same issues, such as in our February post entitled "First, do no harm." We would argue that investors should be carefully considering the correct path for the landscape that may lie ahead. Recent posts we have published have given some advice on what we believe will be important going forward:

  • We believe that there will very likely be a divergence between companies that are smaller and more innovative, and companies that are larger and whose fortunes are more tied to the overall economy and business cycle. We discussed this idea in some detail in "Return of the 1970s, part 2" and "Look for paradigm shifts, part 2."
  • We believe investors may do well to reconsider the much-maligned concept of "New Economy" versus "Old Economy," as we mentioned in a recent post entitled "Revisiting the 'New Economy.'"
  • We would also caution investors to be very focused on owning securities issued by companies that don't have a lot of debt. We hinted at this before, such as in our December post entitled, "The best perspective comes from a business focus."
We have emphasized many times that we do not believe in trying to time cycles, or predict the next moves of the economy, and we are not saying that the current conditions require investors to do so.

On the contrary, we believe that the current environment, and the environment that may lie ahead, only emphasizes even more strongly the fundamental importance of focusing on the ownership of good businesses. That should be the absolute touchstone for all investors -- both in promising times, and in times when respected economists are sounding notes of caution.

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