Tuesday, January 26, 2016

Global Economies as of 1/2016

When I look at the East, Europe is burning. When I look at the West, China is burning. I’m still playing my mandolin (actually not looking at my statements from my broker). The majority of the global economies are connected. When one suffers, the rest suffer too. Let me review some economies briefly.

The U.S.

I have to postpone the secular bull market prediction to 2020 or even later. The market for 2016 is risky. The election year is the second-best year for the market statistically. I do not bet on this one as there are too many negatives. The only bright point is the Fed may postpone interest hike to reduce the risk of this market. In addition, we have produced a lot of jobs for the last four years even their median wage is far lower than the one in 2007.

I bet the market will be correlated with the economy finally next year. They have not correlation since 2009 due to the excessive printing of money. Obama did NOT save the economy as no one can by simply printing money. However, it creates more debts for the next generations to pay.

The tool has been copied all over the world and it is no longer effective. Our strong USD (less as of 5/2016), our huge war expenses, strict regulations, high national debts, generous welfare, taxes and entitlements dampen our competitive edge. The strong USD would reduce the profits of our most global companies. A heavy blow would be legalizing the illegal workers by politicians who want to buy votes.

China is suffering economically. Given enough time, China’s market-driven economy will work. The current downfall drags down many resource-rich countries such as Brazil.  After a taste of capitalism, no Chinese want to return to communism, which discourages folks to work hard – who will when everyone is paid the same?

Chinese are the greatest copycats. If you believe it is that simple to copy, there should be many copycats beside China or the U.S. invites the Chinese to copy. Japan, Korea and even the US (not paying Hitler for using their missile technology…) had been copy-cats at least once in moving to a developed country.

We need to protect our inventions and intellectual properties. I am not convinced they can copy our top-secrets such as the top jet fighter that easy. If they do, there is something wrong with us. Cybersecurity should be our priority for the corporations and the government. When the copycat improves their products and sells them at about ¼ our price, we are hard to compete.

Chinese has been dominated the world in almost everything for the last 20 centuries except the last three. It has saved them a lot by copying and stealing. Today, most of their big projects have a clause to transfer technology. They’re willing to pay handsome fees for technologies they want such as high-speed train from Siemens. Many companies including the U.S. give out the secrets which may be paid in large part by the U.S. tax payers to China for market access. Most of China’s military weapons imports are from Russia and Russia needs the cash to improve their weapons.

Japan is declining due to the ageing population and the poor relationship with China. Contrary to popular belief, India’s demographics do not help. The growing population with a lot of youths is consuming all the resources that are already proportionally small.


It will be hopeless for at least another year. Euro is a good concept especially for tourists. In reality, it does not work. There are too many free loaders such as Greece taking advantage of the unified currency and foreign loans. The influx of Syrian refugees is a big burden. Tens of thousands will help to reduce their labor costs but not a million of refugees. It is hard for the Catholics to co-exist with Protestants (evidenced by Ireland), so I cannot know how the Christians co-exist with the refugees with most are Muslims.

What should the we do

·        Not legalize the illegals.
·        Cut down entitlements.
·        Reduce taxes (both corporate and personal).
·        Reduce the role of the global policeman.
·        Invest in cybersecurity.
·        Think like a terrorist in order to fight terrorism.

The reality

Politicians will stay away from most of “What should we do” as they would hurt election. We have record-high exodus of corporations and the rich due to high taxes.

Today are we threatened by Vietnam of being a communist country? If some country does not like how we treat the minority, should they send soldiers to invade us? If their country men do not want to fight for their freedom, why we risk our young to fight for them?

With the state-of-the-art weapons, we still cannot win in the Middle East wars.  Re-think our options. One option is let them resolve their conflicts.

As of 2/2016, investors should be cautious on the market. However, we may have over-reacted to the problems in China and the falling oil price. Oil is usually in the opposite direction of the economy. However, today it flows in sync with the market due to Saudis and Russia’s dumping of oil via the Sovereign Wealth funds (SWF) to rescue their economies.

The U.S. unemployment is at 5% (virtually full employment from the government’s yardstick) although the median salary is still not comparable to the one in 2007. In 2007, the unemployment is huge. The recession could be spared at least for now as long as the oil price and the unemployment are stable. 


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The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

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