Financial, Economic and Social Mood Update (November 1, 2018)
I skipped the monthly update blog for October, but we are now back in business in November. I took a much needed vacation to the San Francisco, California Bay Area in the second half of September. It was a trip down “memory lane” for me as I grew up in the East Bay from 1967 to 1987 – Elementary School, First Communion, Middle School, Confirmation, High School and finally my undergraduate studies at UC Berkeley (Class of 1984).
The stock market remains relatively robust, but it appears that we may (perhaps) have hit the top of the price-value bubble. The Dow Jones 30 Industrials Index hit a new nominal record on October 3, 2018 (26,852) and had lost 7 percent by November 1. The NASDAQ Composite Index (this one has the largest number of publicly listed companies) hit a new nominal record on August 30 (8,133) had lost 10 percent by the close of trade on November 1 (10 percent or more is the usual threshold into a bear market). The S&P 500 “Blue Chip” Index hit a new nominal record high on September 21 (2,940) and had lost 8 percent by November 1. The Dow Jones Wilshire 5000 “Total Market” Index (this index includes all of the publicly listed companies in the USA) hit a new nominal record high on September 20 (30,500) and had lost 8 percent by November 1.
As I’ve said many times before, the most difficult thing to estimate in any market is timing. Nothing ever moves in a straight line forever, so obviously the stock market will have its up and downs just like everything else in life. A “crash” will happen, but the question is when. Falling stocks mean your investments (especially your retirement savings) go down in value. Falling bonds mean that interest rates will go up – bad for debtors but good for savers. Falling real estate prices mean that the value of your home will go down – this is often a “nest egg” for most families. And the “mother of all markets” is the currency and foreign exchange market. The US Dollar will not remain as the global reserve currency forever, and the US Dollar represents the biggest asset bubble in the history of humanity. Eventually, the US Dollar will crash, which will mean that many other currencies will rise in value vis-à-vis the US Dollar. Ditto with precious metals, such as gold bullion (the only true global currency), palladium (used largely for vehicle emissions systems) and platinum (also used largely to manufacture vehicle emission or pollution control systems for carbon fuels such as gasoline and diesel). Crypto currencies should also benefit from the eventual fall of the “imperialist” American Dollar – the most valuable electronic crypto currencies as of November 1 were Bitcoin ($6,356), Maker ($632), Bitcoin Cash ($425), Ethereum ($198), Dash ($154), Zcash ($115) and Monero ($104). Silver (once used for coinage) has become a largely industrial metal, as have both palladium and platinum. The situation with copper is the same.
Now back to the topic of the greater San Francisco-San Jose, California Bay Area. It has always been one of the largest, most desirable, most expensive and most prosperous parts of the USA, but due to the presence of the Silicon Valley, California in general and the Bay Area in particular have become even more affluent in comparison to the rest of the country. The population is officially something over 7 million people, but I’ve read that the Bay Area has become the 3rd largest urban area in the USA after New York and Los Angeles……….which would mean that the actual population of the Bay Area is closer to 10 million people. Gauging from the traffic on the freeways, I would say that it is closer to 10 million than to 7 million. When I grew up in the Bay Area (1967 to 1987), the south bay was the least affluent part of the Bay Area. Due to the success and growth of the Silicon Valley, it is now the most affluent part of the Bay Area. The intellectual heart of the Silicon Valley can be seen as Stanford University in Palo Alto in the southern part of the peninsula below the city of San Francisco. California real estate prices are number one in the USA, even higher than in beautiful Hawaii. The most expensive parts of the Bay Area are the south Bay, the peninsula and San Francisco itself. San Francisco more than ever is now a magnet for young people from everywhere and for immigrants from Asia and the Pacific Rim. Housing is so precious & expensive, rents are sky high and more often than not more than one family will be living under the same roof just due to very high costs. Much of the East Bay (especially the southern part of the East Bay) have also become super expensive due to the proximity to the Silicon Valley. Communities such as Fremont and Newark (where I attended Elementary School) used to be quite middle class and working class, but this has changed due to the cutting edge industries of high technology, information technology, biotechnology and management information systems – these industries now driving 39 percent of California’s GDP. The demographic mix has also changed, as it does everywhere on earth. Fremont and Newark were once largely Caucasian, but are today something like 60 to 70 percent East Indian and Afghan. The important thing is that they continue to be a great place to live, to raise a family and to send children to school – they are clean, safe and prosperous.
Going over the mountains from Alameda County (which is along the eastern coast of the San Francisco Bay) one moves into Contra Costa County (literally = on the other side of the coast). I lived in the gorgeous town of Danville when I attended both Middle School and High School. Danville is the 14th most affluent zip code in the USA, and for communities with more than 40,000 inhabitants it is number 2 in affluence in the USA. Danville is home to Blackhawk Country Club, the Blackhawk commercial center and the Behring Museum, which features exhibits for antique & classic automobiles, Native American history and African history. The exhibit on Native American history is especially extensive and informative. Blackhawk was developed by Wisconsin born real estate developer Kenneth Behring starting in 1977.
The farther one gets from locations such as the Silicon Valley and San Francisco, the more one will find property prices which are more “affordable.” The north Bay (cities such as Pleasant Hill, Concord, Martinez, Benicia, Pittsburg, Antioch and Vallejo) are in this area. Traffic is so heavy every day & pretty much all day long because so many people who work in the Bay Area live far away in the central California valley. They commute into the Bay Area for better compensation, but they cannot afford to live in the Bay Area. It will be interesting to see what happens to property values in California once the overall global equity markets turn down. These markets have lost a cumulative USD $13 Trillion in value during the course of the last month.
