Most people now a days are pretty optimistic on the direction of the markets. If you’re not rather than being a realist you just might be labeled as a conspiracy theorist. The prospect of the market actually going down almost feels like it’s along the lines of a hokey conspiracy as it just doesn’t happen now a days.
All of the major news outlets, government reports, and financial experts seem to be in agreement that markets will continue to move higher. Just a few months back the US government former Federal reserve president (now retired) had stated that market downturns were a thing of the past. This wasn’t because the business don’t go bankrupt any more or that the laws of supply and demand aren’t in effect but because the government will intervene and prop things up. This isn’t exclusive to the US, it’s a new normal and a standard practice now for central banks with the ability to inflate to stop any sizable down moves and buy their own debt back to keep things steadily higher.
This sounds pretty good I suppose. It has been working for the most part for the past 10 years. Most people don’t know about it and the other half of the people don’t really care. Everything is historically the best it has ever been market wise so why question success?
I question the success of the market for the same reason I question gravity. “What goes up must come down”. Now, I’ve read how no one likes these FUD peddlers but let’s stop and consider what kind of a situation we’re in. The market success has been a result of “emergency monetary policy” which has been in effect since the 2007-2008 market crisis. The emergency status had never been lifted dispite the market rising. This should tell you something when normal = an emergency.
The other thing that we need to take into consideration is that since we are in an artificially propped up market how do we know what the market value is of the assets that we are investing in? The answer is that we don’t. All investors know is that the governments are back stopping their losses until they can’t. The $64,000 question is when can’t they continue. Nobody knows, probably not even them.
So, will the markets sky rocket anytime soon? Maybe, perhaps if some new technology came out it could. The problem is what about the current global emergency monetary policy status everyone is in, they can’t just end it because there is al the money that they created into existence to keep this going. Even if there were another rise or future gains they would still only be kicking the can down the road.
Would cryptos be able to allow the markets to transition out of the inflated fiat situation? Maybe, the question would then be what would the value of the said crypto be and how would it be able to establish and maintain this value. Some may make it and others may fail. It’s hard to gauge yet especially with investors being so fickle.
My thoughts on the matter is to consider what would hold value as a result of the damage caused by the constant government intervention. We know that that there is a limited supply of physical assets but a growing supply of currency. As the supply of one outpaces the other the value of the asset that continues to grow in number out paces the demand of the other asset thus lessening its respective value in comparison. Commodities are of a limited quantity and are currently historically cheap because they are seen as hedges against inflation. According to the current markets there isn’t much inflation right now. Perhaps the time to transition into a different asset class may be very soon…
** This is not financial advice, it is my opinion. Before making any financial decisions contact your financial advisor and find out what investments may be right for you.**
Image source: performance.nl
I don't think monetary policy is as important as environmental policy at this point. The government can and does spend whatever it wants to. That said, the rate it spends has to be offset by production to avoid inflation and what it spends funds on is very important to our future imho.
Without changes we could be headed towards the mother of all supply issues and hyperinflation. If that happens it is doubtful any asset class will be safe. We could also be headed towards a golden age of abundance with free clean energy and healthly ecosystems. Hard to say right now but maybe we will have a better feel of things in a few years.
I agree with you on the supply issue and hyperinflation but that would not destroy all asset classes. After WWI in germany when they had hyper inflation 25 ounces of gold could buy you an entire city block. Some farmers were paying their bills with eggs. So, real goods or commodities will always hold some sort of value. We do have a lot of technology like the clean energy things you mention but if they screw things up we may not have enough time to implement those things as quickly as we would like.
I was thinking more in terms of a global supply issue in a complex interdependent system. A single countries hyperinflation does not really scale up to this as a good reference imho. Environmental issues could play havoc with global production by causing drought and a loss of productive farmland, among other things. This could lead towards increasing desperation and warfare causing further loss of production. If things get bad enough, I have my doubts that any asset class will survive, after all the sustainable production of modern goods and commodities requires a healthy ecosystem, energy and global trade.
From my understanding, the collapse of civilization is no guaranty that the weather systems will stabilize. Global average temperatures may raise even faster and we would have lost the ability to make significant changes through geoengineering.
I don't mean to be overly pessimistic but just clarify my statement on what would possibly destroy all asset classes. We do have wonderful technologies and ideas that could really improve things, so we really could be headed towards a much nicer future filled with increasing global cooperation.
The hyper inflation would certainly not be limited to the US, there is a lot of the same going on around the world. I do understand your point though. When my friends show me some of their potential survival gadgets that require batteries I always mentioned how Mad Max never used batteries lol. I would like to see a brighter future but I think that that is only possible if people come together to make that happen. Right now people are all going in different directions and mostly for selfish gain. There has to be a fundamental change in perspective to cause this willingness to get along. The experience that is going to cause this change in perspective is going to really have to be something...
amen. this is a very good thought my friend is proud of you.
Always some good short and sweet, easy to read articles.
Thank you friend.
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