One Heck of a Reality Television Fight

The world’s a better and brighter place when your portfolio’s growing like spore bearing mushroom fungus.  Horizons are expanded.  Perceptions are broadened.  And the secrets of the universe are all within reach.

Life takes on new meaning when you’re getting financially loaded.  The decade long bull market in U.S. stocks has brought clarity, purpose, and accomplishment in ways that are both agreeable and reassuring.  Namely, these matters have been delivered in the form of budding portfolio statements.

A simple investment in a low-cost S&P 500 Index fund has delivered 4X returns over the last decade.  John Bogle, no doubt, is smiling from his grave.  He was right.  Your broker at Edward Jones – the one that put you in an actively managed mutual fund with the high fees – was wrong.

Do you think the S&P 500 “might could” quadruple again over the next decade?  Stranger things have happened.  For example, Alan Shepard wet his spacesuit in the Mercury capsule prior to launch without consequences.  Who’d a thunk it?

The more important question, however, is: Would another 4X stock market run from here be a good thing?

Remember, Venezuela’s Caracas Stock Exchange, Stock Market Index, has soared over 80,000 percent in the past year alone.  Yet Venezuela’s economy’s in ruins.  The country’s economy has been in freefall since 2014, contracting -16.5 percent year over year in both 2017 and 2018.

What to make of it?

A stock market that only goes up is suspicious.  Like a car with bald tires – or a smiling politician – you can’t trust it.  In fact, a stock market that only goes up typifies a country where the government’s engaged in the unseemly practice of mass currency debasement.

Human Stampedes

The mega bull market in U.S. stocks since 2009 has been accompanied by the weakest economic recovery of the post-WW2 era.  In other words, the stock market’s zigged while the economy’s zagged.  When the zig is to the upside everything’s marvelous.  When it’s to the downside, fund managers jump out of windows.

Here in the USA new evidence was brought forth over the last two weeks that stock markets go up…and they go down.  What’s more, the stampede towards the market exit is generally more swift and violent than its prior entrance.  And it often comes with little warning.

The mass impulse of a cattle stampede, for instance, can be triggered by something as innocuous as a blowing tumbleweed.  A sudden startle, or a perceived threat, is all it takes to set it off.  Once the herd begins charging in one direction it will eliminate everything in its path.

The only chance a rancher has is to fire off a pistol with the hope that the shot turns the herd onto itself.  When successful, the herd stampedes in a giant circle.  Sometimes, it stampedes off a cliff.

Modern man, a complex animal that ranges between homo sapiens and homo neanderthalensis, is also predisposed to herd behavior.  Like bos taurus, the human animal’s capable of getting so worked up it stampedes all over itself.

Religious pilgrimages, sporting events, music concerts, New Year’s Eve celebrations, and political rallies gone bad have all triggered deadly human stampedes.  Several years ago, over 2,400 people were trampled to death during the Hajj Stampede in Saudi Arabia.  When things get crowded, and there’s no way out, crazy things can happen.

One Heck of a Reality Television Fight

In today’s frenetic world, humans are granted a variety of opportunities to stampede from one way to the next.  Financial markets and the emotions of fear and greed provide a fertile landscape for remarkable human folly.  New opportunities for manias, panics, and crashes are available to the masses.

Yet when geopolitics also mixes with the economy and financial markets, the opportunities to behave like idiots become exponential.  Economic nationalism and the China bugaboo is shaping up to be one heck of a reality television fight.  This is a cause that idiots on both sides can line up behind with gusto.

Much ink has been spilled this week in an attempt to frame, characterize, and analyze the China and U.S. trade deal stalemate.  China’s state run media even clarified the official party line, while using some of the strangest sentence syntax we’ve ever read:

“As President Xi Jinping pointed out, the Chinese economy is a sea, not a small pond.  A rainstorm can destroy a small pond, but it cannot harm the sea.  After numerous storms, the sea is still there.”

Perhaps a trade deal is still salvageable.  Perhaps stock prices can be inflated ad infinitum.  But, regardless, the millions of unskilled manufacturing jobs that have been offshored to China over the last 30 years ain’t coming back.

Finger pointing.  Chest thumping.  Table pounding.  These behaviors are here to stay.  And they’ll likely escalate into something regrettable.


MN Gordon
for Economic Prism

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  14. Hans says:

    The reality is that the great Mr Bogle advice
    has been destroy by public policy in the DC

    SPY, in May of 99 sold for 130 and currently
    trades at 278; which would represent a paltry
    gain of 114% over two decades.

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