Why You Should Brace Yourself for Big Financial Changes

Extrapolating current trends into the future leave many people unprepared for major societal shifts

The one thing you can count on in financial markets, and society at large, is change.

I was reminded of this when I read this May 18 New York Times' headline and subheadline:

The Last Days of Time Inc.

... how the pre-eminent media organization of the 20th century ended up on the scrap heap.

Time Inc. has been purchased by the Meredith Corporation, which plans to spin off Time magazine, Sports Illustrated, Fortune and Money. All four magazines have suffered from declining ad revenue and declining circulation. There are other details, but the bottom line is that an established media empire, which had a long history of reporting on change, has now been swept up by change.

A generation ago, many observers would not have imagined that a company as iconic as Time Inc. would find itself "on the scrap heap."

But linear trend extrapolation has always had its pitfalls, and on changes that have been on a much bigger scale than one media company, which brings to mind what the 2017 book, The Socionomic Theory of Finance, said:

(1) It is 1975. Project the future of China.

(2) It is 1963. Project the cost of medical care in the U.S.

(3) It is 100 A.D. Project the future of Roman civilization.

In 1975, the Communist party was entrenched in China. ... Would anyone have imagined that China's economic production, in just over a single generation, would rival that of the United States?

In 1963, medical care was cheap and accessible. ... Would anyone have guessed that [today] pills would sell for $2, $20, $200 and even $1,000 apiece?

In 100 A.D., would you have predicted that the most powerful state in the world--the Roman Empire--would be reduced to rubble in a bit over three centuries? Few people of the day imagined that outcome.

Let me add: It's June 13, 2005 -- what were many people projecting for home prices?

Well, here's a Time magazine cover which published on that date:

Time Cover

If that cover was an indicator, most people expected home prices to keep rising. But, we know what happened: Housing stocks topped that very year and the "subprime mortgage crisis" hit about two years later. Eventually, home prices plummeted by more than 50% in some of the nation's high-flying real estate markets. Moreover, the Dow topped in 2007 and then suffered its worst decline in 75 years:

Yes, this dramatic trend change in the Dow also took many observers by surprise.

The reason you should brace yourself for more big financial and economic changes is that EWI's analysis suggests that the next financial change will again surprise the unprepared.

 

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