The Untimely Death of Long-Held Assumptions

The Untimely Death of Long-Held Assumptions
Thursday, June 25th, 2009

Ever since the Economic Crisis began, there has been one facet that has been very under-recognized – that many long-held assumptions have proven incorrect.

There are many of these assumptions, but I will list a few. The “fallout” from these assumptions proving incorrect has been widespread and very damaging:

1. Real estate (particularly residential) always goes up.
2. Las Vegas / gambling is immune to recessions.
3. A Fed Funds rate near zero would, in effect, “supercharge” the economy; i.e. lowering the rate would cause the economy to “boom”
4. Gold would “rocket”, or at least perform very strongly during a financial crisis
5. “Gentleman’s Clubs” are recession-proof (see link)http://online.wsj.com/article/SB124467942901904435.html

There are many others. It is important to realize that, although these assumptions may seem to have been rather faulty in hindsight, the reason they became such ingrained beliefs is that they had withstood “the test of time.” That they have now proven inaccurate, after such lengthy “tests of time” is, in my opinion, another testament that we are currently in an economic environment that is truly different than those that have come before – with the concomitant implications…

SPX at 907.66 as this post is written