Financial, Economic and Social Mood Update (October 1, 2017)
The US stock market continues to be very robust – the Dow Jones 30 Industrials Index reached a new record nominal high of 22,420 on September 21, 2017. The NASDAQ Composite Index hit a new record nominal high of 6498 on September 29, the S&P 500 Index did likewise on the same date (2,519) and the Wilshire 5000 “Total Market Index” did so as well (26,131).
Timing is the key – but it is almost impossible to do!
The most difficult aspects of market forecasting include 1) timing and 2) degree (magnitude in this case) of wave strength. Elliott Wave International was established near Atlanta, Georgia in 1979 and they accurately called for the bottom of the then near term stock market which took place in 1982 – at that time, the Dow Jones 30 Industrials Index reached a level in between 700 and 800. After this happened, they attempted to forecast how long in time and how high in value a new record bull market would go. The initial forecast called for a “top” as early as 1995 and a value for the Dow as high as 5,000. This did take place, but what happened is that the Dow failed to stop so soon in both time and magnitude. The Dow and the market as a whole kept going until early 2000, when the Dow reached a nominal value of 11,700. Thereafter, a crash did indeed occur – but this was by no means the end of the story. The overall market and in particular the Dow fell to a level of 7,100 by October of 2002. After this, the market went back up once again to break new records – up to the level of Dow 14,800 by October 2007. What took place at this point is the most serious decline of our era – the market as a whole and in particular the Dow fell to a level of 6,400 by March 2009. Since that time we have witnessed the greatest bull market in human history reach the level of Dow 22,200 as of September 15, 2017. We know this cannot and will not last forever, but when will the top come, and how far down toward the ground will we eventually fall? It actually would have been better if the market would have experience its “ultimate” crash years ago, but unfortunately that did not take place. We can blame the central banking system, with the politicians behind them, and the “puppet masters” behind the political façade.
Regardless, our Long Term Fate is Sealed!
Nobody on earth knows for sure, but I still believe that this will happen sooner rather than later, and that the end result will be nothing less than completely brutal. The central banks of the world have taken the level of credit, the level of unfunded liabilities (mostly social welfare programs in the developed economies) and the level of financial derivative instruments (mostly held by money center banks in the form of “bets”) to unprecedented levels. The major fiat currencies are backed by nothing more than central bank credit and by the ability of governments to tax their people. Eventually, credit will literally dry up, and something will have to replace the fiat currencies – either paper or electronic crypto currencies backed by precious metals such as gold bullion. Most of the people on this planet including rich, poor and everyone in between are not prepared for this eventuality. In the USA almost 80 percent of the population (rich, middle class and poor alike) are one paycheck away from financial insolvency. Central bank policy of “credit inflation” and a sense of responsibility totally different from a generation ago has allowed people to live far beyond their financial means, but eventually this fantasy existence will come to a very abrupt and brutal end.
It all comes down to Demographics – we need MANY more Kids, they need to be smart, and they need to make a lot of Money!
Another aspect of life in today’s world is the greatest demographic collapse of all time. Families are no longer very traditional, families are broken (and short term in duration), families are much smaller than in the past, the population is becoming older than ever before and very few young people are being born to replace the old. We can actually take this trend even further – because animal and plant species are dying out at an unprecedented rate as well. And what does a human demographic collapse mean in language that all of us can understand? Too few younger people = too many older people = a vanishing labor force = an evaporating tax base = a much lower level of affluence over the long term future. In statistical terms, human purchasing habits reach a peak at the age of 45, and go into decline thereafter. For the average global human population (at age 45), marriages have already taken place, the children have left the nest and therefore adults spend less and less money until they finally die. It doesn’t sound nice, but statistically speaking it is accurate!
Manufacturing & Transportation – Key Industries as always
The most affluent industries on earth include heavy manufacturing (especially transportation or motor vehicles), energy (crude oil, natural gas and beyond) and now information technology. But as we have seen, these industries are just as vulnerable to collapse as everything else. Energy is now moving away from fossil fuels, which will affect not just energy but every aspect of life on earth. The motor vehicle industry has committed to spend vast amounts of capital to make this into a reality over the course of the coming 3 decades, but the end result is still in question (with respect to their continued future sales of cars and trucks). Massive infrastructure will have to be built to accommodate the new technology, and in the final analysis cars and trucks will likely be much more expensive to purchase and own. Furthermore, the eventual collapse of credit will end the practice of so many people living so far beyond their financial means. And the global demographic collapse means that the smaller pool of younger people (especially those with the best education, the best skills and the highest levels of income) will migrate ever more toward large and affluent metropolitan areas. These younger people are already far less likely to own private motor vehicles when compared to their elders – and largely out of their own choice or preference. In very large and very crowded cities, a private car or truck is more often than not too much of a burden to own.
High Technology – a much newer Key Industrial Player
The phenomenon known as “Artificial Intelligence” (AI) means that the Silicon Valley and the San Francisco Bay Area of northern California (which already owns 5 percent of the wealth on earth) will continue to become ever more affluent and ever more influential. Employment on all levels – be it low, middle and even higher level employment – will gradually be eliminated due to Artificial Intelligence and the ongoing information technology revolution. Leaders in both industry and government have warmed up to the idea of “guaranteed minimum income” (i.e., expanded social welfare benefits for virtually the entire population), but this will just continue to raise already record levels of debt, dependence, and take yet more power away from the general population – a continued and even more extreme “dumbing down” of the human population, so to speak.
How are our short funds doing?
“Our” being “5 Guys Takeovers” – comprised of fellow MBAs William Benecke, Tony Cruz, George Afferden, Rusty Leopoldshagen and me. Crypto-currency or electronic currency in the form of the Bitcoin Investment Trust (GBTC) is up 89 percent in the last 78 days, or 418 percent on an annual basis. We also short bonds (i.e., bonds, notes, bills, Fed Funds, Fed Reserve, Prime Rate, Auto, Home Mortgage, HELOC, plus the weakest national bonds including Greece, India, Mexico and Brazil), which is lucrative when interest rates go up – which they have been doing very nicely (thank you) since we initiated this part of the short fund in November 2014………our net increase since then has been an okay 17 percent. We like precious metals (especially gold bullion and silver, the latter being more of an industrial metal) – these are still down from their record highs which means a net loss for this part of our fund. Remember, we expect both precious metals and crypto currencies to soar once the global paper fiat currencies collapse – in particular the American Dollar, the Euro and the Japanese Yen (home to the most indebted nations on earth, in this order). We short currencies as well, and expect many developing country currencies to eventually reward our patience – similar scenario to precious metals. The lion’s share of our current short fund is comprised of equities – in particular the Dow, the NASDAQ, the S&P and the Wilshire indices. With these at a record high, we believe that our continued patience will eventually be handsomely rewarded. Our record high overall short fund value was reached in January 2015. And why did we decide NOT to sell at that point in spite of a monumental paper gain? Once again, because we firmly believe that the mother of all global crashes is not far off. Our analysis material is complicated, but we ARE willing to answer any and all questions to the best of our ability.
Websites and Books
I’ve run 2 websites and published 11 books since 2006 which have been visited / read by more than 811,800 people from 194 countries on 6 continents. The 11 books have been “liked” by more than 51,100 readers to date, and we are connected to more than 4,100 friends on social media sites such as Facebook. Rusty, his wife Susie and their eldest children Barbara & Wolfgang help in running the social media – many thanks!
3 of my books have been on the subject of the carmaker Volkswagen AG. VW has finally moved beyond the self-inflicted mess of the so-called “diesel scandal” in the sense that they are once again the financially strongest automaker in the world. This “strength” I estimate not merely by profitability, but by capital investment, liquidity and market value as well. The VW Group is on track for record unit sales worldwide (10.3 million new cars and trucks) as well as in the USA (637,000 new cars and trucks). They are the biggest car company in the world (and my favorite since I was a kid).
2 of my 11 books published are on the subject of scale model collectible cars. You probably heard that “Toys R Us” has declared bankruptcy due to very high levels of debt. Sounds like the entire USA, and even like the EU and Japan to a lesser extent! The 2 largest American toy companies (Mattel and Hasbro, respectively) are also faltering in more ways than one – market capitalization and market share. The largest toymaker in the world is Lego from Denmark – still family owned and on the Forbes list of course. It’s amazing to see how their product line has grown – themed building sets for both boys and girls, and an entire line of product for high technology as well. The other large toy companies are domiciled in Germany and in the UK – namely Simba Dickie (they own Schuco among many other brands) and Hornby (they own Corgi among many other brands). Mattel from El Segundo, California is particularly known for the likes of Barbie Dolls, Hot Wheels and Matchbox, albeit true Matchbox enthusiasts and collectors always prefer the good old stuff made by Lesney Products in England prior to 1983.
Our Archives
To access our archives going back to December 2011, please visit this link, which has recently become our most popular link (34,500 plus visitors and growing by the day): http://www.theborromeofamily.com/the-marc-nonnenkamp-show/.
