Time to talk money. How many readers know who Eugene Fama is? Dr. Fama is a finance professor at the nearby University of Chicago. He is widely recognized as the “father of modern finance,” a champion of efficient markets, and the intellectual father of today’s index fund industry.
In October, it was announced that Fama was being awarded the 2013 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel, along with Lars Peter Hansen and “crash prophet” Robert Shiller.
Anyway, the reason I bring Dr. Fama up is because the distinguished professor is warning of a possible recession in 2014- one that he believes will be global. Ilze Filks and Mia Shanley reported last Saturday on the Reuters website:
One of the three Americans who won this year’s Nobel prize for economics said bloated public deficits on both sides of the Atlantic meant that recession remained a real risk for 2014.
Eugene Fama, who shares this year’s 8 million crown ($1.2 million) prize with Robert Shiller and Lars Peter Hansen, said on Saturday that highly indebted governments in the United States and Europe posed a constant threat to the global economy.
“There may come a point where the financial markets say none of their debt is credible anymore and they can’t finance themselves,” he told Reuters in the snow-covered Swedish capital, where he will receive his prize on Tuesday.
“If there is another recession, it is going to be worldwide.”
(Editor’s note: Italics added for emphasis)
One more thing about “Mr. Efficient Markets.” Shawn Tully of Fortune magazine reported last Friday:
The mere use of the term “bubble” makes Fama see red. He says asset price bubbles simply don’t exist. Fama argues that when stocks crash — as in the dotcom crash or the cataclysm of 2008 — it is caused by a perfectly logical fear that a depression might follow.
Keep the dream alive for Main Street and Wall Street, and the financial house of cards can remain standing longer than most “doomsayers” suspect.
Still, the charade can only be pulled off for so long.
By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)
Filks, Ilze and Shanley, Mia. “Nobel economics winner Fama says risk of global recession in 2014.” Reuters. 7 Dec. 2013. (http://www.reuters.com/article/2013/12/07/us-sweden-nobel-idUSBRE9B605C20131207). 12 Dec. 2013.
Tully, Shawn. “What can you learn from Mr. Efficient Markets now?” Fortune. 6 Dec. 2013. (http://money.cnn.com/2013/12/06/investing/eugene-fama-markets.pr.fortune/). 12 Dec. 2013.
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