Musings on the Market

After the past two weeks in the world investment markets, I thought I would offer some personal musings on a few issues.

China. Investors worry the Chinese economy is sputtering a bit. Though China’s economy is now the same size as ours, its population exceeds 1.3 billion. That represents massive growth potential. The Chinese people want a better life for their families with new technologies, better products, higher wages and an opportunity to create wealth, just as we do. The Chinese government has been opening the country to various levels of capitalism for the past couple of decades, and the economy has grown dramatically. But let us not forget, China has been under dynastic rule for thousands of years. The communist leaders today like the benefits of capitalism but are reluctant to release control too quickly. This is all very new to them and there will be challenges, resistance, and missteps along the way. None of this should surprise or panic us. It is a normal course, one which we followed ourselves, but I believe that the future will continue to be brighter for China.

Interest Rates. Would the Federal Reserve please just raise interest rates and be done with it? Why is everyone so worried about it? Big Deal. Raise them and let’s move on. A look at history shows a strong correlation between rising interest rates and rising stock markets. Are people really going to stop buying homes because mortgages go to 5 or 6%? Fear of higher rates might actually spur a buying spree. Raise rates and let the shopping begin.

Oil Slump. This is the biggest mystery of all to me. One of our nation’s greatest economic hopes in my lifetime has been for cheap and abundant domestic energy. We now have that and people are worried about it? I don’t get it. According the U.S. Bureau of Economic Activity, energy accounts for about 8% of our GDP. Imagine how much more profitable our businesses would be, and how many resources would be freed up in American homes, if those costs were cut in half.

Finally, with every market correction, the prophets of doom come out of the woodwork claiming they had warned us all along. These people spend their lives predicting disaster, so of course they will be right on occasion. If a weatherman predicts storms everyday he will sometimes be right, but think of all the nice picnics his followers will miss out on along the way.

I was amazed to see that gold guy from the 70’s, (whose followers lost fortunes and opportunity when the predicted rough times did not arrive) on the news claiming he told us so. Sheesh. Before you believe some guy whose website claims he has predicted every major economic disaster for the past 30 years, do a little Googling of your own and you will likely find, as I have, that their history of making false disaster predictions is, as we say, an inconvenient truth they conveniently fail to mention.