At least in this post…this is a lightening round of some of the issues in the news:
- Yes the markets are getting whipsawed, even with today’s big move back up. Not surprising; valuations using conventional metrics (such as the market price to earnings multiple) have been extremely high compared to history. One can make the claim that we are still in bubble territory with the S&P 500 at an average PE of over 25. But we’ve also had historically low volatility; markets need some volatility to bleed off excessive exuberance. Bull markets climb a wall of worry, but there has been precious little worry until the last few days. Finally, the concern is inflation, because central banks may finally be forced to scale back on global liquidity (which is what I maintain has been the fuel of the incredible stock market rise). As we normalize monetary policy, it has always been known that the unwinding might be painful.
- Yesterday we got a report of a 9 year high in the trade deficit; according to Mr. Trump we must be losing. I want to tell Mr. Trump, no this does not mean you’re a loser. In fact it means you are a winner. Domestic economic growth and increased confidence in your policies are encouraging consumers to spend on imports and for foreigners to want to invest in the US (a current account deficit must be offset by a capital account surplus, i.e., foreigners investing in US). Keep on winning Mr. Trump! Don’t mess it up by trying to fight a non-problem.
- Poor Venezuela is now in the throws of hyperinflation. For some reason the collapse of oil prices has only ruined one country–Venezuela. And even as oil prices are creeping slightly back up, Venezuela’s implosion continues. Hmmm…I wonder why this happened there?
- Finally, bitcoin is coming back to earth. So regulators are clamoring that they need to protect the public from digital currencies. While I remain a fan of the potential implications of block chain technology, I’ve always maintained that the government would never allow bitcoin as a dollar competitor. The U.S. will not allow a competitor to its monopoly money.
What’s the common denominator in these? Each issue is due to the intersection of politics and economics. We live in a mixed economy, whether we like it or not. This is a far cry from the Biblical role of “bearer of the sword” for the government.