Next bull cycle will begin, regardless of that, sometimes between 2018 and 2022, it is possible it will coincide with the end of the next presidential term, so around 2020 or 2021. I’m excited.
State interventions, yes or no? Economic stimulus, yes or no? Support for ailing companies, yes or no? Support for start-ups, yes or no?
Much of the economic theory revolves around these kinds of questions, while one is strictly for artificial stimulation or changes, the other is strictly against.
I have made several discoveries that make clear in this matter. It also, at the same time, explains how corruption harms the economy by unfair economical advantage and how fair economical advantage supports and builds the economy for the long term.
[This document was written in several parts which may not be joined seamlessly, so in this intermezzo, I’d like to declare that I appreciated the analyses done by Stephanie Flanders in the past, some were real eye openers for the rich strategic view and proper questions asked. To balance that, I have to say that as much as I am amazed by what she has said and written, I am utterly confused by her personal life and physique.]
What is The Economy and The Markets? It is the average of all the individuals participating in it. So, the economy literally IS what people are buying and creating. And what happens when you bring into the market a product and services that nobody asks for and that nobody needs? It does not help the economy grow, prosper, function.
Now imagine you are some kind of a government minister. You steal, say 20 million and spend it on a grand project of a luxury car dealership that in the end gets very little visitors. Your common poor citizens certainly don’t visit it with their puny cars. As far as the economy goes, the money was essentially wasted. And the money was taken from the taxpayers who could have used it to support the economy by making many small purchases, giving jobs and employment further in the economic foodchain. In this and similar cases, you see how corruption harms the economic growth of a country.
Another case are grand projects, whether they are massively overpriced or not. When these projects are made because of just a wish or as a dream of someone in charge, without sound economic analysis of the current and future needs and developments in the economy, these projects are not going to help, and compared to the situation where the money and material would be spent by the average way of the economic participants, much worse.
A beautiful case was the era of around 2003 to 2008.
[insert stick-figure chart of SP&500]
There is a solid empirical (and theoretical) basis on observing the markets as a series of processes, which need to happen, whether you like it or not. Whether you subscribe to a specific school of thinking is now not important (like Elliott waves for example), what is important is the recognition that market trends exist and alternate. Boom-bust, bull-bear, bubble-crash. In the 1990’s a new era started, era of the Personal Computer, era of the Internet and the prospect of an “internet-based economy”, the whole topic and prospects were ‘uncharted’, but everyone knew that this would play a major role in the future. In the rise to the peak around 2000, you see the process of value of S&P 500 companies going up. Then a corrective motion appears where the first wave of interest vanes and some bad investments are weeded out. The economy as whole re-adjusts and NEEDS re-adjusting to this new paradigm. Why? The shift was severe, the consumers changed habits and products consumed, the industry faced challenge of people not needing or wanting only physical items. And with it a new idea of economic growth independent of energy consumption was created. If your business wanted a firm footing in the FUTURE, it had better be independent of oil. [Idea first floated by Stephanie Flanders.]
And now, notice the weird anomaly that looks so unnatural in the slow wave moving on the S&P 500 chart. What is it? It is the bull market of around 2003 to around 2008 and the subsequent crash. How was it made? Artificially. Much was said and written in the era from 1999 to 2004 about economic malaise and need for deep economic reforms and then “how Bush administration is pulling your attention from it by foreign relations” and subsequent forcible stimulation of the OLD economic principles by increased wasteful consumption, reckless spending on energy-intensive processes like war and war machines. Instead of explaining all, world oil consumption in a large time frame shows it all. The era of around 2003-2008 has a noticeable bias (shift) upwards for the era, which returns to the mean and stays at the mean afterwards.
[insert oil consumption (purely world oil consumption, not price or deliveries)]
This is very interesting. Basically, the data tells the same story: if you try to avoid the changes that are absolutely necessary for the future, you can delay them, but the need for the change will stay. You can even create a new paradigm (the way how things work), but it will not be sustainable. The changes the world economy (I am saying here: the participants of the world economy) is going trough will catch up with non-compliant economies and hit hard.
So my educated answer to the endless dispute of regulation, economic stimulus and forced changes to the economy is: it can do harm as well as help. For any such changes to the system to work well, it must be done in the direction of the flow and in the direction of the real future conditions of the needs of the drivers (customers, spenders, creators who supply desired goods). A bad example that harms the economy is a blind attempt to “spend your way out of the recession”, when the economic malaise happened because some deep structural reforms are very badly needed. That was exactly the case of Bush era presidency, and as the stick figure chart of the S&P500 index shows, it was unnatural, reinforced the old bad habits of the economic participants and as a result, the reforms that forced itself upon us in the big crash were hitting much harder than they would if they either happened naturally or would be introduced as these were needed.
My advice? Reinforce the good habits in the economy by as little as possible and let the natural competitiveness weed out the inefficient ones. Only rarely you should tell someone to quit, and even that at best in desire for him to seek alternatives or more efficient uses of what he does. If you need to employ workers inefficiently, make sure they do find other positions as soon as these become available. If there is corruption, make sure it sucks less than 0.1% GDP and even then it must be spend wisely and locally.
Did you enjoy the reading? Pictures coming later.