First, if we really are entering a global bear market worldwide, this must be said up front:
That sound you hear could be the air finally being let out of the bubble blown by the world's political elite. #TheFatalConceit #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
The Fatal Conceit aside, here are my 2 Bitcoins worth of thoughts in the wake of today’s market convulsions:
1) People ought to stop thinking The Federal Reserve can drop manna from the heavens.
The Fed is not G-d. It is a group of very mortal central planners who control the cost of money. Unfortunately now, they control so much more, in an attempt to manipulate the prices of financial assets and prop up whole industries.
The Fed is all pseudoscience and no substance. http://t.co/o18e2OP2qP
— Benjamin Weingarten (@bhweingarten) August 23, 2015
We should pray for a world in which people’s lives do not hinge on transcripts of Fed minutes.
2) The Fed has zero incentive to raise rates and extricate itself from financial markets.
It will always find an excuse (turbulence in the markets, tepid growth, political uncertainty) to follow the path of least resistance (in this case keeping the Fed Funds rate at 0% ad infinitum). What political reason could it possibly have to allow interest rates and prices to normalize?
But seriously, the Fed ain’t raising rates anytime soon. https://t.co/yAGnsUVhXn
— Benjamin Weingarten (@bhweingarten) August 24, 2015
Peter Schiff agrees:
The Dow Jones drops 1,000 points on the open. Is Janet Yellen getting ready to blink on rates yet?
— Peter Schiff (@PeterSchiff) August 24, 2015
3) It will continue to debauch the currency however.
The Fed is the only body in the world (save for the other central banks) whose job is to explicitly devalue its main product. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
4) That people put their faith in world economic growth in Communist China was/is asinine.
So you’re telling me #China couldn’t guarantee 10+% growth per annum via central planning in perpetuity?
— Benjamin Weingarten (@bhweingarten) August 24, 2015
But I thought state capitalism was going to save us all. #CentralPlanning4Life #BlackMonday https://t.co/7dcGsuJbES
— Benjamin Weingarten (@bhweingarten) August 24, 2015
5) Remember that Thomas Friedman wished we were more like them.
Except Thomas Friedman probably. https://t.co/kAFLXvPGZL
— Benjamin Weingarten (@bhweingarten) August 24, 2015
6) He was wrong. Markets trump Communist central planners.
That Chinese “authorities” cannot control the prices of stocks illustrates the great power of markets over central planners. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
7) And it is not the job of politicians to control prices — up or down — to begin with.
It’s not government’s job to control the rapid rise or decline of prices of any product. http://t.co/545jPkgPQt pic.twitter.com/1a6T6PrQh5
— Benjamin Weingarten (@bhweingarten) August 24, 2015
8) Seriously. It doesn’t work and it’s wrong.
"State Capitalism" at its finest. #BlackMonday https://t.co/ZzwAYVM81i
— Benjamin Weingarten (@bhweingarten) August 24, 2015
9) In fact, the manipulation of prices by the political elite is one of the primary drivers of crises in the first place.
What, did you think there would never be ups and downs in a hyper-regulated marketplace distorted by genius central planners? #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
10) But sadly…
Very telling how world reacts to #BlackMonday by looking to politicians to "fix" falling prices. Sad sign of our times.
— Benjamin Weingarten (@bhweingarten) August 24, 2015
11) More sadly…
Look forward to progs blaming a market rout starting with the tanking of a Communist country's market on rapacious capitalism. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
The results are in. Unfettered free trade has been a disaster for working Americans. It is high time we ended our disastrous trade policies.
— Bernie Sanders (@SenSanders) August 24, 2015
12) That unpleasantness aside, one thing worth noting is that as in the post-Great Depression, millennial investors are likely going to continue to stay out of the market.
If there really is a massive sustained correction, will be a good test to see if millennials hop into markets post-financial crisis.
— Benjamin Weingarten (@bhweingarten) August 24, 2015
13) But perhaps they shouldn’t if we get a sustained drop.
What millennials should be thinking today: Could be great buying opportunities if this is the start of a protracted downturn. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
14) Also worth remembering is that contrary to their portrayal in the press, financial markets are not everything.
Helpful reminder: Debt and equity markets are not a 1:1 proxy for the economic health of a nation. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
15) And our bias towards ever-higher prices is not healthy.
Ever notice how people never panic when stock prices jump dramatically, only when they fall precipitously? #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
16) Lower prices convey valuable information too.
People only hate markets when they reflect information that people don’t like. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
17) The public will still probably want to burn the evil speculators though.
I predict there are going to be articles advocating banning short selling starting in approximately 0 seconds. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
18) A healthier perspective is to view the market as being on sale when everything tanks.
The contrarian investor views this as stocks (which are likely still overvalued) going on sale. Everyone else panics. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
If you can be a liquidity provider when everyone rushes for the exits, you will not only protect but grow your capital. It is much easier said than done of course.
19) Also worth noting in an era of 1,000 point drops at market open is that there is a recent force in financial markets that is going to amplify volatility. We should get used to it.
Another lesson from today: Algorithmic trading accentuates moves to the downside AND upside. #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
20) Ultimately, here is one way out of this mess:
3 step soln for world leaders: (1) Allow the price mechanism to work (2) Get out of the biz of monetary manipulation (3) Enjoy #BlackMonday
— Benjamin Weingarten (@bhweingarten) August 24, 2015
21) But we’ll probably do the exact opposite if this metastasizes into a crisis, which President Obama will NEVER let go to waste.
Scary thought exercise: What economic/financial chaos might the Obama administration sow in the face of an end-of-presidency market tank?
— Benjamin Weingarten (@bhweingarten) August 24, 2015
Featured Image Source: YouTube screengrab/Paramount Pictures.
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