Is the stock market growing up?
After a couple of days of fear, the markets of the world are reverting to their alternative mood, of greed. Market psychology resembles the limited moods of an overtired two-year-old, although my youngest grandchild is much better-behaved than the bourses.
The first question readers ask is: are we there yet? Is this the bottom? Will stocks go up from now on? Should I buy? Will I become rich if I do it today?
The second question is is: should I have bought yesterday or last Thursday? Has the buying opportunity gone forever? Are there more dragons out there? Do I keep my money under the mattress?
My answer is yes to both questions because I do not have the answer. There are no charts to predict the future course of this volatile global equity market. No history exists for markets at these levels in the USA. Never before have we seen this degree of global interconnection. There has never been a rise of China business before. There has never been a loss of confidence in the euro before. There has been no somewhat capitalistic investment in Russia since 1917. For the first time Brazil really does seem to be the country of the future, but do you believe it?
To quote Yogi Berra, “it is dangerous to predict, particularly about the future.”
Having said that, my background as a PhD candidate in history is beginning to come to the fore. And here are some questions I am raising for myself.
First, is there anything really different about Greece's woes and those of the Latin American emerging markets in the 1960s to 1980s? U.S. big banks were on the hook, and American global political needs required a solution. We found one. Europe will do the same.
There will be an Alliance for Progress or Brady Plan for the Greeks. In the end, the solution will be the same as what was done for Latin America back then: refinancing, restructuring, extending the debt which cannot be paid back. European banks which lent will accept these terms. Just beefing up Greek loans is no solution for them or for Greece. Imposing austerity is politically unpalatable and unlikely to provide the means to pay back the loans.
Another history note: when I was a kid the boogieman was Japan. It copied American products and knocked them off cheaply. Its currency was cheap and labor ditto, which enabled defeated Japan to overcome a lack of raw materials. Its (male) population were too busy making things to make babies. Lifetime employment hampered entrepreneurial impulses. Japan accumulated huge reserves in dollars but had trouble finding ways to spend the money.
Japan set about buying assets with the loot: Impressionist paintings, golf courses, trophy buildings, industrial companies. It did not spend on improving its population's housing, social security, leisure facilities.
Today salarymen still are out of the house 14 hours per day, which hampers family life. Still no babies. Trashy comic books (manga) and fantasies about raping schoolgirls insult the female half of the population which gets up to speculation during the day when the master is at work. When he comes home at night (even if drunk) his wife waits at the door with his slippers and bows down to him. Then she scrubs his back in the tub. But she does not tell him she was off with her (male) stockbroker borrowing yen to buy Australian dollars during the day.
Japan today is a withered relic of economic prowess. It population is aging and there are no youngsters ready to take over the business of financing the grey panthers' retirement. Home comforts and even square feet are in short supply. The best known companies have lost their reputation for quality. No longer the boogieman.
This too can happen to China, with a 30 year lag.
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