As any of you with a tele-vision are already advised, the stock market fell 87% this afternoon after suffering a triple-figure decline at one point in the trading session. Culpability for the carnage is being assigned to China and its present proclivity for manufacturing South Sea islands rather than mountains of plastic toy dinosaurs. Less specifically, growth under The Great Sedge Hat is slowing markedly, with few other industrial engines left to gather the slack. Normally Chinese GDP would be of no more concern to normal Americans than Biden’s brand of malt liquor. Though because we now reside in an insourced/outsourced petri-dish, the productivity of distant rice paddy peasants affects us as much as the Guatemalan fertility rate. That is to say, vastly more than it should.
Of course global free trade isn’t just about relocating millions of foreign labor units into Europe and America, where they can be efficiently converted into consumers. There’s also a downside. That being economic interconnectivity. We jettison domestic industry so they can specialize in manufacturing the things we’ll borrow money from them to buy. But that’s still the upside. The real downside is when they have a problem, we do as well.
I can’t offer much guidance beyond intuition as to what the market will do from here. Though as someone who made and lost a seven-figure account in his 20s, my intuition might at least be comparable to your barber’s. The market has been largely driven by QE dollars seeking return and leveraged corporate buy-backs driven by the near-zero rate environment. The former is concluded for the moment. The latter has not. Business has been borrowing very cheap money to repurchase shares, thus improving earnings-per-share and placing a floor of demand under their market. While waters are calm, the shares look and perform better.
But leveraged buybacks also have the effect of turning equity investors into margin investors–whether they realize it or not is wholly irrelevant. Margins amplify returns, both up and down. And when scenarios proceed particularly down, creditors take the business. Though because rates remain disastrously low in service to The Economy, the last leg of buybacks remain rooted under the stock market stool…for now. I say disaster since the present environment offers no safe yield, thus incentivizing its pursuit by parties without appetite or capacity for the resulting risk. Imagine you are a retiree trying to live from the income squeezed out of 125 basis points. Now imagine you are that retiree with your life savings in the stock market today. The choices aren’t getting better.
From a technical perspective, the sort of wild volatility on display today is extremely bearish. Though fundamentally most craterings appear in the company of rising rates. Something our All-American federal reserve board is going to be loathe to do if bodies are flying out of Wall Street board rooms. Which leaves them as out of options as a Congolese physics professor. My advice: don’t panic sell into the teeth of a decline, but watch volatility. Bull markets tread lightly, while bears thrash.
All of which is preamble to the point. For years acquiescence to Western dispossession has been purchased with prosperity. A flourishing 401 and 12,000lbs of new SUV in the garage are arid soil for a focused mind. But when employment is being frantically shuttled to foreigners as both nest egg and neighborhood simultaneously dissolve, a man begins to consider fields of inquiry beyond fantasy football. He begins to ask questions of how, why, and who. Given sufficient volumes of leisure and beans, he will come to conclusions the donor class considers highly infelicitous. And when that happens, Trump will be the most reasonable man in the room.