It’s Christmas Eve and The Dow is down over 4000 points, NAS is in a bear, S&P is flirting with 2300. You can look at this like gloom and doom if you like but I hardly think it’s gloom and doom. Because of political leadership joblessness is 3.7% and applications for work are at a 49 year low. The economy looks like GDP will be over 3%
Tax cuts were passed and taxes simplified and tax revenues despite the cuts or maybe because of the tax cuts are screaming after hitting an all time high in Oct. Welfare and food stamps and government transfer of wealth was down. What worked in 2018 was having a job. What worked in 2018 was the system of American capitalism. Just look at the FIRE blogosphere how many new blogs and podcasts came online and how many get rich books were published and courses and coaches went into business. So many experts so little knowledge, such magnificent marketing but still the freedom to express ones self in commerce was respected and rewarded. What worked in 2018 was the political system. Kavanaugh despite a media and political S-Show was confirmed according to the rules and the rules were therefore validated whether you like or hate the outcome. Presumption of innocence was validated. What worked in 2018 were elections Dems took over the house, dividing government according to the system and the peoples’ will, the same as peoples’ will was worked in 2016. Preserve the political system at all cost.
Would I wish the Dow remained 4000 points higher? Maybe, maybe not. My fear would be less but my reality probably more precarious and deluded. After the 2008 S-Show and slice and dice incredibly levered credit of the Bush the economy was WAY out of whack. Everybody blamed the banks but everybody was at fault, because everybody (except us debt free savers) participated. You can’t have 3 new cars and a boat parked outside of your faux McMansion with it’s second and third mortgage on a cabbies salary and say it’s the banks fault for providing you the heroine. Hank Paulson and Robert Reubin deserve our respect IMHO. Had it not been for them and the fact we can print money and are the world reserve currency, we’d be in deep depression. That trick of moving all that bad paper to the FED balance sheet to give it time to mature was genius. The banks were put in idle living off 2% short term Treasury money while the bad debt matured. It has matured to the point over the decade that it can now be sold by the FED back into the market. The skittishness comes from “no one knows” what price it will bring, but one thing’s sure the market will determine that. The training wheels are off. You can’t heal if you don’t express the pus. Also banks have been returned to their own resources and are no longer in idle. The people and the banks over the ensuing decade have repaired their balance sheets and there is some rationality back in the system so now it’s time for the market distortions to be relieved and for commerce to happen. This means there is now a market in bonds hence the rise in interest rates. The 30 year hyper bull market in bonds which was 90% above it’s mean is over and it will trend back to the mean. Stocks likewise are way above the mean and must revert. The CAPE is proof enough of the perversion. Interest is way low and will revert to it’s mean as bonds and stocks pull back toward the mean. You will actually will make a little for your act of saving money. The process of relieving this distortion sucks but is necessary IMHO. Even to the most ardent FIRE guy it matters. Eventually that FIRE guy will be retired and if things are running 150% over the mean that cool million will be bubble gum money. Starting at something closer to the mean is more sustainable over 40 years. Short term pain long term gain. Would I wish this happened 5 years later? I’m living off cash for the next 5 years so I’m well risked for this scenario and if it’s going to happen, as it must happen, might as well be now. Is it scary? I don’t have the one thing that worked this year, a job, so yes it’s a bit scary. Guess I could always start a blog… OH WAIT I did start a blog… Also in 5 years I’ll be closer to death so I will need less to survive till death. How’s that for Christmas Cheer?
One problem I do worry about is the loss of IP. My wife bought a new Christmas tree this year. It’s a Chinese POS. Poorly engineered knock off of an American design. My Church has the “same design” in their tree done correctly and has been in use for probably 2 decades. The POS tree is going back in January. The US has had an advantage over the past 300 years and that advantage is abundance. Abundant land, abundant water, abundant navigation. the fact the rivers all flow from N to S and then to flow into each other. Things like winning the war of 1812, the Louisiana purchase, the purchase of Alaska, the movement into the West and those territories becoming states. Things like the development of mechanical farming and the blast furnace which allowed rivers of steel aka Railroads to link the East and the West and the North and the South so goods not only could be produced cheaply but the logistics of nation wide delivery became present. Roads and a good education. A common moral reality. All of that and more is what has made us prosperous. The long term GDP runs about 3.22% over decades. Allowing it to be stolen by China or debased by open boarders will only result in our destruction and GDP in the 2’s or less. Nobody’s FIREing on a 2% GDP. You may not even normal retire on a 2% GDP. If you wonder think Venezuela. If we loose our currency as the reserve currency we will be in trouble as well. Be very clear where’s the butter is on your bread and preserve it’s up-ness. Take nothing for granted.
Like WC Field’s epitaph: All in all I’d rather be here than in Philadelphia. Down here there is no state income tax and I haven’t run my furnace yet this year. Merry Christmas ya’all.