16/08: Occam's Razor
According to Wikipedia, the free on-line encyclopedia,
“Occam's Razor (also spelt Ockham's Razor), is a principle attributed to the 14th-century English logician and Franciscan friar, William of Ockham. It forms the basis of methodological reductionism, also called the principle of parsimony or law of economy.
In its simplest form, Occam's Razor states that one should make no more assumptions than needed. Put into everyday language, it says:
The simplest explanation is the best.
When multiple explanations are available for a phenomenon, the simplest version is preferred. For example, a charred tree on the ground could be caused by a landing alien ship or a lightning strike. According to Occam's Razor, the lightning strike is the preferred explanation as it requires the fewest assumptions.”
Benchmark’s outlook is for a significantly weaker US economy sometime in the next two years – quite possibly sooner rather than later. The simplest explanation for our view is that the US consumer is over-extended. This is not news nor is it new. What is new is the reliance on personal assets (investments and real estate) to help fund continuing consumer spending.
Instead of saving for retirement or rainy days, we are in the midst of a buying spree fueled by debt and the expenditure of home equity. This will not last. When it does end, US consumers will be forced to radically reduce personal consumption in order to rebuild their personal balance sheets. If real estate declines rather than simply goes flat, the adjustment will be extremely painful.
When the implications of the US failure in Iraq become fully apparent and are added to the impending slowdown in consumer spending, the impact on the US economy should produce a serious recession. This is the basis then of our bond heavy portfolio strategy.
O. Sam Folin, CFA
Benchmark Asset Managers LLC
August 16, 2005
“Occam's Razor (also spelt Ockham's Razor), is a principle attributed to the 14th-century English logician and Franciscan friar, William of Ockham. It forms the basis of methodological reductionism, also called the principle of parsimony or law of economy.
In its simplest form, Occam's Razor states that one should make no more assumptions than needed. Put into everyday language, it says:
The simplest explanation is the best.
When multiple explanations are available for a phenomenon, the simplest version is preferred. For example, a charred tree on the ground could be caused by a landing alien ship or a lightning strike. According to Occam's Razor, the lightning strike is the preferred explanation as it requires the fewest assumptions.”
Benchmark’s outlook is for a significantly weaker US economy sometime in the next two years – quite possibly sooner rather than later. The simplest explanation for our view is that the US consumer is over-extended. This is not news nor is it new. What is new is the reliance on personal assets (investments and real estate) to help fund continuing consumer spending.
Instead of saving for retirement or rainy days, we are in the midst of a buying spree fueled by debt and the expenditure of home equity. This will not last. When it does end, US consumers will be forced to radically reduce personal consumption in order to rebuild their personal balance sheets. If real estate declines rather than simply goes flat, the adjustment will be extremely painful.
When the implications of the US failure in Iraq become fully apparent and are added to the impending slowdown in consumer spending, the impact on the US economy should produce a serious recession. This is the basis then of our bond heavy portfolio strategy.
O. Sam Folin, CFA
Benchmark Asset Managers LLC
August 16, 2005
