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One of the best places to be brought up to speed on the global interplay of politics, the economy and investments is the comment forum at Rick Ackerman’s website. Lately, Rick’s insightful writing has been particularly incisive and always challenging us to understand the precarious nature of global economics today.Rick recently mused on the rout that we should be having in the stock market, suggesting the decline should be much worse than it is and I respectfully disagree. Here’s why. There will be no stock market crash unless and until interest rates rise and bonds dump. Until then, stocks will continue to be a parking place and trading place in this persistently low interest rate environment; that’s why there will be no rout, artificial or manipulated or whatever doesn’t really matter, it is what it is. Plenty of buyers will step in at a 38.2 fibonacci retrace from the S&P’s recent 1228 peak, if not way before then, again assuming the continued low interest rate environment. Even at today’s valuation levels, there are at least a few dozen reasonably solid stocks paying 4% to 10% dividends, not to mention various dividend paying ETF’s and MLP’s.
In his latest article, Rick also put forth the following comment on inflation; “…But who cares about inflation at the relatively trivial level of manufacturing, exports and domestic consumption when hugely larger forces – namely a quadrillion-dollar financial shell game – are at play, threatening to expose the world’s currencies as worthless IOUs…”
One can surmise Rick is being wryly stimulating rather literal with this comment. First of all, the shell game is irrelevant because its the new normal and I can’t imagine how one could regard inflation as trivial to mfg, exports and domestic consumption. Here in Asia anyway, inflation in those areas hurts like hell.
The world’s currencies are not worthless IOU’s, Yes, they are being gradually debased in value over time, over the decades in the historically natural and reasonable economic cycles of growth and inflation that have gone on. The broad idea that a boom will of course again be followed by a bust is an assumed and old paradigm in a new globally cyber-connected world. Yes it helps to look at models from the past but as guides only.
We are in unprecedented waters globally, economically and societally. Yesterday’s MarketWatch headline was something like “the decline goes global” and sounds much scarier than it is. I say that the USD will drop to a new lower 60-70’s range in the coming year…so what? That’s nice. Then America will be more attractive and money and commerce flows of all types will once again reverse direction and the govt will start paying more attention to the National Export Initiative and things will improve! Up down up down back and forth back and forth in a complicated dance between currencies, equities, commodities, global regions, etc. It’s a global candy store! This quarter we like Snickers, next quarter we roll into dark chocolate, uhoh trouble in gummie bears, let’s move to Cliff Bars…I’m not saying it will all muddle along, I’m saying it will all rotate along.
In a globally cyber-connected economic system, traders and speculators including institutional level trading desks, banks and hedge funds rotate their funds into what’s going up and out of what’s going down. That shouldn’t surprise even a novice investor. Or in the case of short play strategies, the exact opposite positions are being played. In fact I’ll suggest with conviction that it is less and less possible in the current environment for any particular asset class to get really out of whack relative to the others. Think about that for a second; the response/reaction of the free-flowing asset markets is now a globally connected response/reaction. That’s a lot of leverage at play, like a deep water oceanic tsunami which one could theorize prevents and protects us from any one particular item to demonize the rest. The USD won’t drop TOO low because there are plenty of folks out there with a vested interest in that NOT happening for LOTS of interconnected reasons. If oil hits $140 when it shouldn’t, you can bet there will be a global reaction which sends a very strong “we’re moving on from oil, we’re not tolerating this price” message.
The Shanghai taxi fleet of 60,000 plus plenty of other vehicles, runs on LPG natural gas and soon enough your town may be running on a very safe mini-nuclear reactor buried in the hill behind Mr. Miller’s house on the westside of town. Your car will be a cute little 1.0 liter engine Smart Car. Say goodbye to your unnecessary luxury SUV gas guzzler and guess what, your life will be just fine with oodles of stuff you didn’t really need in the first place to be happy and live a reasonably meaningful life.
Have faith, humans are crazy and unpredictable and scary, but creative and amazing too. They will respond at some point as they need to adjust to their circumstances and move on. While the level of greed and corruption is enough to make you want to go postal, in the light of history the debasing of currency values and inflation of costs is normal, boring old news.
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