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There are 9 very good reasons to be concerned about the Global Economy and the Markets At-Large.

If you read partisan news outlets, the blame is assigned already on a political basis, but the problems with the economy reach far deeper and the pie-fights on social media and on corporate media are masking the real problems.  Recession may be ahead, but it could just be a correction, at least for now.  There are grave warning signs for the United States and the entire world going into 2019 that are simply overlooked.  Drama and outrage increase ratings and interaction, but it does not raise awareness.

1.  Debt plagues all.

The United States’ debt is exorbitant and the unfunded liabilities that are soon to run out of money will become a crisis in less than a decade without serious reform.  However, Japan and Southern Europe are experiencing problems with their government’s gross debt.  There are serious entitlements to pay for, but not enough tax revenues to pay for them.  Austerity measures bring about anger and economic contraction.

Canada was once a fiscally responsible nation and now they face problems related to debt just like their neighbor/rival/frenemy, the United States.  The government and the people have a debt problem as household debt has doubled in the past generation.

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Canada’s debt issues are alarming, but masked in the drama that surrounds Washington D.C. and cult of personality that Prime Minister Justin Trudeau presently enjoys.

2.  China has been in a bear market for a few years.

U.S. President Donald Trump may be talking about China as if they were an unstoppable economic force, but the reality is that China is proving themselves to be an economic farce lately.  China is not a country with a government that has published economic data to be trusted in the first place.  Sporting ghost cities and debt problems, it is not necessarily a thriving country.

China’s equity market is certainly not booming.  It is in a bearish cycle and foreign entrepreneurs trying to strike it big in this market have found themselves disillusioned by the experience.  Going where a large number of people are without regarding the conditions of the target marketplace is a bit of a blind gamble.

The Shanghai Stock Exchange Index (SSE) had a run up that looks a lot like Bitcoin’s boom and bust, except that Bitcoin fell in a more spectacular fashion from its peak.

China is an economic powerhouse and their slowdown eventually reached its way across the world.  However, it is just one contributing factor to this toxic economic brew.

3.  Overvalued/Overbought Stock Market Correcting Itself

The Price/Earnings Ratio is used as a way to determine if a stock is overvalued or undervalued.  When examining an entire index of stocks, it can also point to an overvalued market where there are very few gems for investors to buy.

It should not be surprising that the equity market would correct in 2018, what causes panic is that the participants and onlookers have a 2008-2009 PTSD and that the market turning negatively on its own would result in a repeat of the Financial Crisis.  A media that is obsessed with profiting from pain (despite losing 50% or more of their market cap in the Financial Crisis) combined with profit-taking activity and an overheated equity market creates a mess.

This problem is exacerbated by the advent of index funds, which are encouraged because of the prevailing belief that people cannot beat the market, which is untrue.  When indexes fall, rather than having a portfolio with lower volatility than the market that meets the needs of the investor, the investors are in for the market roller-coaster and it becomes an unfortunately emotional journey for those with retirement accounts.

The signs of the overheating market were there and weirdly it was the brokers themselves that gave it away.  Retail investors are always on the tail end of the activity, what was E-Trade’s advertising campaign?  It centered around a common theme “Get Mad, Get E-Trade”.  It showed people put into situations where they were treated poorly or the people around them were generally horrible people that looked down upon the protagonist.  The solution of course… put your money into the stock market and stick it to them!  It’s a campaign unfortunately befitting the stigmatized retail Forex Market.

 

 

 

When you see advertisements like this,  it is time to run for the hills out of the stock market.

4.  Institutions realized the Market was Pumped Up and Dumped.

The stock market was pumped up by several factors:

  1. Cheap Money thanks to low central bank rates and quantitative easing.
  2. Company stock buy-backs to offset institutional and retail sellers.
  3. Optimism and belief in a recovery.
  4. Relative stability.

Investors on institutional end were smart to this and while retail investors were getting sucked into the market, they were selling and taking their profits.

5.  There’s a Tech Bubble, but it is not what you think.

Hierarchies exist in the technology space.  Those with control of hardware systems have greater control over the  software that can and cannot be used.  The same companies with essential hardware and servers also are developers of software and operating systems that we all use.  Being dependent on a few companies and not having such independence in distribution and maintenance puts software developers without a foothold or interest in the heavy lifting whether it be the creation of smartphone, cloud servers, or other hardware that is on the unsexy back-end of what we consume in a precarious position.

Facebook, Snap Inc., and other software companies can fade away much easier than companies that have invested in the hardware infrastructure like Microsoft, Amazon, Apple, and Alphabet (Google).  It is easier to be rid of these software companies and app providers as they are building upon the architecture that was built by other companies.

Social media is a bubble.  Whether it be TikTok, Facebook, Twitter, Snapchat, and others, all of them have a very similar model to monetization and that is advertising.  It’s just another medium for advertisers, but the problem is that unlike traditional media, there are no controls over the content as it is user-created.  This brought about a mess for social media companies that have wielded a great deal of influence in the marketplace.  In fact, it is a problem for any provider of “content” in the digital space.  Fake users, VPNs, and click-farms have discouraged social media advertisers as well.

The concept of hierarchies is best explained in this 10 minute video.

Change is happening and the big companies that recognize the risk of reliance will survive while the others put themselves at risk of being like the companies of the Dot-com Bubble as they have shorter company lifecycles.

Digital media enterprises based out of New York have been run out of business or purchased at a severely discounted price compared to their valuations a few years ago.  Univision is trying their darndest to sell Gizmodo Media Group (either in fragments or as a complete package) to any buyer.  New media has significantly lost its luster considering their narrowing audience and decisions to alienate a broader readership that might find interest in topics discussed.

6.  Executives want a recession to re-adjust their labor force.

This is a major time of change from technology to economic/political shifts around the world.  Unfortunately, there’s a talent base that has stagnated or is in need of different pastures.  Executives sense this, but it also has a weirdly darker side.  Layoffs are BAD optics, but when they during economic recessions, they are to be expected since a lot of companies are doing it.  Executives do not want recessions all the time, certainly.  However, they want to hit or exceed guidance and labor costs are a concern.  They want the best talent for the lowest price and they cannot get that during an economic boom, which helps contribute to the increase in fake job postings.  It is an opportunity to wait out a boom and be able to jump in and contact talented individuals during a bust at a discounted rate.

Sounds crazy?  It isn’t.  Corporations do not hold the leverage right now and would rather not play than pay more.

7.  Underemployment and Unemployment Figures are Inaccurate

Many dropped off the unemployment rolls simply because they became discouraged and over time this ends up being considered a positive on the unemployment rate.  Underemployment is very high among millennials with college/university degrees.

Welfare assistance and homelessness has been rising since the Financial Crisis.  More are living in cars and showering at gyms.

Underemployment means more multi-generational households, delayed spending/investment decisions, and a population bust to come.

8.  Federal Reserve Tightening Credit and Money Supply

When interest rates are low and money is literally being printed, what are people going to do with their money?  Put it into fixed income vehicles with interest rates below the rate of inflation?  No, they are going to invest in investments that deliver a higher rate of return and this creates a higher risk environment.  It is not surprising that the stock market had a run-up during this time.

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There goes the stock market.  The hangover is happening now.

9.  The Scariest Problem:  Enterpreneurship is DYING.

Enterpreneurship spurs economic growth.  What happens when entrepreneurship falls?  Growth stagnates.  New businesses and risk-taking to create progress in our world spurs improvement of our lives.  When this does not happen, it is a problem.

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It gets scarier because the generation that happens to be the least entrepreneurial are Millennials.  Are there any positive trends associated with Millennials or does it have to always be so bleak?  If you have hope for the economic future of the world, Millennials are not the generation to deliver it.

Student loan debt plays a large role in the lives of Millennials, it keeps them from doing anything that would be considered progression in their lives as adults.  However, this is far from the only problem the beleaguered generation faces.

Millennials are a depressed, hopeless generation that sees itself as victims and chooses not to compete.  This is a generation that largely takes one of two approaches:

  1. Wallow in misery and accept the results.
  2. Tear down the entire system, seize the economy by force, and engage in a form of communication and politique that hearkens to the movie “Logan’s Run”.

The major contributors to the entrepreneurship problem in the United States:

  1. Student loan debt as Federal Student Loans are guaranteed money for the Universities and Colleges, which means higher tuition costs to pay for lazy rivers, new buildings and resort amenities.  Universities (public and private) are glorified country clubs in the United States.
  2. Talented individuals graduating during the time of the Great Recession having careers de-railed.
  3. Helicopter parenting and fear of taking risks because of it.
  4. Association of risk solely with loss.
  5. Mistaking entrepreneurship with innovation.
  6. Cozy relationships between the State and Federal Governments with Large Corporations.  Cronyism.
  7. Increased regulations to benefit the Large Corporations and discourage entrants.
  8. Intellectual Property barriers.
  9. Patent Trolls.
  10. Venture Capitalists looking to “brain rape” .  Some will steal business models and intellectual property to undermine entrepreneurs in need of funding.  They take the concepts and put it into the hands of those they could better control rather than an unknown quantity.
  11. High taxes and complicated taxation processes.
  12. Operation Choke Point’s lasting impact of picking winners and losers.  Banks becoming political activist arms.
  13. Unwillingness to create competition for larger names.
  14. Depression, anxiety and drug abuse.

A suicidal generation combined with a melodramatic media and culture is a dangerous combination.  It is no wonder that Millennials are self-medicating with Wine O’Clock (Generation X issue too) and various strains of marijuana.

The lack of entrepreneurship from a generation with a gripe and desire for any sort of control in life has unfortunately brought life to ideas that will repeat the errors of the previous century.