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Friday, August 28, 2015

My thoughts of the current crossroads in the market

We are at historical times, economically.
Leading up to 2008 crisis, the standard economics taught in the USA since world war 2 was generally in effect.  There was breaking from economic standards starting with Bill Clinton in 2000 with dismantling of Glass-Steagall act put into place in the depths of the Great Depression.

The purpose of these laws was to establish realistic accounting to value banks and keep monetary reserves and risk at acceptable levels.  The reason this is important is so private business does not become public liability if there is an issue.  In 2009 mark to market accounting was suspended.  Mark to market accounting is what non-banks live by.   For example, if you declare your house is worth 300,000 dollars, but the houses near you for equivalent assets sell for 200,000 dollars, you bank will use this information to value your house.

Since 2009 the stock market has risen to historic levels in the USA.  Ignoring the banking sector, corporate America has been doing pretty good, even for a critical eye like myself.   But while the companies are doing good,  the average American has not.  Companies are benefiting from huge gains in technical advancements that enable better profits with less people.

China has been advocated as a world leader of the NEXT generation of economics.  I have question this wisdom many times.  There are two primary drivers for me questioning this conventional wisdom.  First is the historic 1 child per couple and second is insane levels of mal-investment never seen in human history.  The combination of both makes China's future economic leadership questionable.

So here we are at end of August 2015, with China's stock market down 41% two days ago from June high.  USA is down 7% from all time high set on July 17th this past Monday.  As of today the USA SPX is down 6.5% since July 17th.   America is in an epic panic!  down 6.5% in little over 30 days after being up 300% since March 2006.  Oh the horror!

The Stock market was meant to be a risk taking event.  US citizens cannot take risk.  The only question left is what next?

And here my friends, I can no longer advise.  We are entering a world where corporate profits will hit record profits for the next decade, with majority of US citizens losing economic ground.  For the market is this good for the market?    China will need to shift to robotics leaving out 100's of millions of citizens without better income, is this good for the market?

China is actively trying to devalue it's currency along with many other nations to gain an economic edge through manipulation over innovation, is this good for the market?

With the realization that all laws are meaningless illustrated by the willingness of society to accept mark to fantasy accounting as perfectly fine to use logic and rule of law to judge outcome of this current events as at best pathetically optimistic.

We may be entering a time where the market soars beyond anyone's wild dreams leaving out 90% of Americans behind, with the world suffering from innovation investment due to risk tolerance.  We could see the USA market cut in half as it joins the world downturn and the realization of fantasy accounting is just that.

I no longer have faith in gold, oil, or any resource in the face of world economics being turned on it's head.  I have only faith in companies advancing technology to get reliable income for the next decade.   Tesla, Google, Facebook, Amazon (AWS), and others are world leaders in their sectors.

For now, I am stuck in the gold miners, with epic lows I have to think they will double or triple from here.  But who knows.  Good luck.

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