I read this article
predicting the “End of the economic cycle”.
Why most market predictions
by economists are wrong
It is interesting. The market
cycle usually is 6 months ahead of the economic cycle. Based on this, the ‘end’
argument does not hold. However, as of today (4/09/2019), the market
fundamentals are bad. I would move more to CDs after the settling of the trade
war with China. To be warned, all markets are different.
I have about 10 hints for a
potential market crash. The most deciding factor for me is the SMA, Simple
Moving Average. When it turns negative, it is time to exit the market. The
number of days in SMA depends on your risk tolerance. It is described in my
book “Profit from coming market crash”. SMA does not pin point on the market
peaks / bottoms as it depends on past data.
Most economists are wrong in
predicting the market. The former Fed chairman said the economy was great and
after a few months in 2008 the market crashed. There are many other factors
such as politics and geopolitics. To illustrate, if there is a major war in
Middle East, the market would tank no matter how good is the economy.
The good job report is good for
the economy as it would reduce the chance of a recession. However, if it is too
good, the Fed would raise interest rate to cool down the over-heated economy
and hence it would reduce corporate profits. The job report on April, 2019 is
fine for both the economy and the stock market. Mathematically incorrect, it is
close to zero unemployment especially in the low end.
Grouping world’s economies
The world’s leading economies are
US/EU (with Canada and Australia) and the challengers are Japan, S. Korea and China
in the last two decades. The first group’s success is due to technology
starting in Industrial Revolution in Britain. U.S. joined the group after WW2 when Europe
was destroyed.
The first group is declining
slowly and is being replaced by the second group. It will take decades to be
totally replaced judging from the decline of both Spain and Italy described next.
In 1850s, Spain and Italy were the
richest countries with the ‘loots’ from South American and other colonies. When
the country is rich, the citizens want to enjoy life by asking for higher
salaries, more vacation days, better social welfare, better protection to the
workers and environment. Hence, they lack the incentive to work harder and
their products are less competitive. Are the U.S. and the EU countries are
repeating history?
The other factor is population
size. Populations in most of the mentioned countries are shrinking. Aging
population makes the problem worse. You need more educated and productive
citizens. They solve part of the problem by immigration. EU is learning the
hard way in many incidents caused by terrorists from immigration. U.S. needs to
immigrate top scientists to make us more competitive and the workers taking farm
jobs and jobs even not wanted by the social welfare recipients.
Most of these countries are
borrowing heavily – a common trick by politicians to buy votes. It solves the
current problems and buys some votes, but it will be a big burden for next
generations. Watch out when the national debt is about twice the GDP. Japan has
the lost decades. We and many EU countries have not learned from Japan. China
has the same problem now. In addition, China’s population has been surprisingly
reduced even with the new two-child policy.
Most countries not included in
the two groups will remain poor for decades to come. Many countries in Africa
and S. America have high fertile rates – thanks to the Catholics. They consume
all the limited resources. A growing population without education (required for
productivity and innovation) is not good for them.
In general, countries with
Protestants are economically better than Catholics and Catholics are economically
better than countries spending too much time in religions such as Muslims and
Indians. If you pray five times a day, when can you find time to work?
Most countries in the second
group of the advanced economies are influenced by Confucius who teaches them to
serve man and their family (actually the emperor to be precise). Confucius
teaches them to be frugal (saving money for investing) and better educated for
innovation.
Another factor is life style. Many
countries not included in the two group enjoy their life style by not chasing
material stuffs. They are happy by singing and dancing without fancy smart
phones. Lack of consumption of these fancy products would not make them
advances in economy. Good or bad? You decide. That’s one reason Mao’s era was
backward as they’re not chasing satisfaction from these consumers' products.
China’s economy
Many arguments are valid for
China at least from the beginning of Qing (the last dynasty) to today. In the
beginning of Qing, China’s population had at least doubled after the war. China's
GDP was leading the world. The higher the population growth, the higher
the GDP mathematically.
Their ignorance on the Industrial
Revolution in Britain led to China’s century of humiliation. Brits pushed drugs
to China as they had nothing better to trade. That is the first time in recent
history Chinese openly accepted western culture / technology. The biggest blow
is the loss to Japan, which had been viewed as inferior for centuries. After
Cultural Revolution, China produced the largest number of STEM students. After the embargo about 40 years ago, many Far
East countries such as Japan, S. Korea, Hong Kong and Taiwan contributed initial management know-hows and technology. Followed by U.S.'s global companies providing foreign direct investments.
There is no incentive to work hard
under communism and there is no freedom for individual thinking and hence no
innovation. Most of our technology companies such as Microsoft, Apple and
Facebook are founded by individual thinkers. Hopefully China will allow more
freedom and protect intelligent properties in order to reach to the next phase
in developing the country.
Deng changed the history of China
with the help of U.S. to take out the embargo. Deng had lifted millions from
starving to death, the worst suffering. He did not get a Novel Peace prize
while Obama got one for doing nothing. It reflected how ignorance and bias the committee
was. China today still has a lot of problems to fix but I bet it will be the
largest economy in 2025 no matter how U.S. tries to stop it. China does not practice
communism, which does not allow citizens to set up shops.
This short article covers many
topics and it was written in an hour. I have not taken any course in economics,
so it may be very different from what you learned from colleges.
----
The above is from my book "Can China Say No?" available from
Amazon.com.
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