Taking Stock

Predictive model of the next recession from Guggenheim Investments

   The financial market swings are causing a bit of concern for those invested in it, from those hopeful with retirement plans to those who might already be retired, and from investors once giddy with quick fortunes now watching those gains disappear as quickly as the cryptocurrency trend.  A drop of 10% in a portfolio is a mere $1000 if you've put in $10,000; but multiply that by another 10 or 100 and you may be gulping at a one-week loss of $100,000.  All nonsense to those not so involved and coupled with that nonchalant attitude of "it's out of my hands" or "think long term."  But this is what struck me most about these gyrations (beyond the fact that our U.S. government is now passing the 21 trillion dollars debt level)...auto loans for new cars are through the roof with the average loan being for $31,000 (and many are above the $50,000 mark).  The key word here, as with our government, is loan...and those loans will all come due whether you can pay or not.  Is there a fear of a recession, an end to the good times?  Perhaps, because as was noted some months ago in Market Watch, every single Republican president elected since 1909 has experienced a recession...viewed another way, it would appear that that is what our electorate want since their votes (or non-votes) proved the deciding factor.  And what are the chances that the U.S. (or world) might hit another recession...well, it might be as early as in six months said one model from Guggenheim Investments: ...our recession date coincides with a period where the balance sheets of the world’s major central banks will likely be shrinking in aggregate for the first time since the financial crisis, removing that form of global monetary stimulus just as U.S. fundamentals are weakening.  

   A quick primer and then off this subject because I am not Joe Analyst or Bill Finance (although stats show that the S&P 500 once again beat virtually all such professional advisors in returns in 2018).  Here's a quick down-to-earth explanation from The Balance of how a country's debt can build and build and build (think of it as charging away on your credit card and the company just continuing to increase your credit limit): Most governments can safely finance their deficits instead of balancing the budget.  Government bonds finance the deficit.  As long as the debt is below the tipping point, creditors believe the government will repay them...An ever-increasing national debt slowly dampens growth over the long term.  Debt holders know in the back of their minds that it must be repaid one day.  They demand larger interest payments.  They want compensation for an increasing risk that they won't be repaid.  That increases interest rates and slows the economy.  Businesses borrow less.  They don't have the funds to expand and hire new workers.  That reduces demand.  As people shop less, firms slash prices.  As they make less money, they lay off workers.  If interest rates continue to rise, it can cause a recession...At some point, the country can’t afford to keep rolling over debt.  When it threatens to default, it creates a crisis.  That’s what caused the Greek debt crisis, leading to the eurozone debt crisis.  Iceland defaulted when it bailed out its banks.  In the United States, an example is with some municipal bonds.  Cities have had to choose whether to: 1) honor pension commitments and raise taxes, 2) cut retirement benefits, or 3) default on their debt.  The possibility of debt default is looming over the United States with Social Security.  If investors ever lose confidence, the federal government will have to face the same choices as these cities. 

Biomass graphic: Scientific American

   Okay, enough scare tactics.  If you're young and savvy then you're likely tossing your hands in the air and realizing that what will be will be; and if you're older like me it's not much different.  The big money has likely cashed out some time ago (the sell-off) and will buy back in once we (that's you and me) lose enough in the market and things are selling at a bargain.  Inequality begets more inequality.  Years ago, as in back in the big crash of 2008, I bumped into a retiree whose portfolio had lost over $1 million (he didn't say how much he had invested).  "I'll never make that back," he told me as if to emphasize his age.  As with Las Vegas, he had gambled and the dice came up craps...a bad luck of the draw.  But rather than picking and choosing what graphs to highlight or articles to feature (for anyone can seemingly sway an argument by showing only one side of the picture), my take on all of this came from a different sort of graph in Scientific American which was simply titled Taking Stock of Life.  It's the bigger picture isn't it, that of life?  If you can, peek way at the bottom and see where we are on this planet...yup, that us, that tiny dot that encompasses all that we are, stock markets and all.  Said the piece: Higher-resolution satellite data and improvements in genomic sequencing have made such measurements possible by yielding more accurate estimates, but the uncertainty is still high for hard-to-count life-forms such as microbes and insects.  Antarctic krill, a type of small crustacean, have a total biomass comparable to that of humans...Humans have decreased the biomass of wild mammals sixfold and plants twofold through actions such as hunting and deforestation, the study estimates.

    Several friends of ours have fallen under major operations or ailments, some quite life-threatening.  It can happen quickly, a fall or a stroke, an accident or a jabbing pain.  Such events can change one's life in the immediate term but sometimes the change in one's life can be long lasting.  Speech and movement might have to be relearned, or gaits and independence now become dialy struggles just to simply overcome.  At such a point, one begins to take stock at just what matters, what one really needs and wants and who one's dependable friends really are.*  Such matters as the swings of the market become as trivial as the wondering of what movie to stream next (this is not to trivialize those whose retirements or fortunes were entrusted to a company or fund manager who perhaps bet wrong on a portfolio or sector).  There is so much yet to learn and discover, such as the finding that a small species of worms (caenorhabditis elegans) can easily survive gravities way beyond our own capabilities; we humans lose consciousness at just 4 or 5 times our gravity, while these studied worms can undergo 400,000 times our gravity with no ill effects.  If we're only now discovering that worms are perhaps that much more capable of surviving, and that our place in this planet is rather minuscule, then think of what we could discover if we just turned off that cell phone or smart TV and reflected at the wonder of it all.  Think of what we could discover if we just utilized that worry and time not to study the market but to study ourselves, to look inward and find out what really matters to us.  Perhaps it might be the fact of having that new car no matter the cost; but it might just as well be a simple re-connecting with an old friend, or reaching out to a stranger, or taking just a few minutes and breaths to realize that there are many in the world who are less fortunate than we are and that many of us should just acknowledge our blessings while we are able.  After all, in the big scheme of things we occupy little more space that those tiny creatures we call krill now swimming under the frigid waters of Antarctica. 


*Studies show that despite social media ranting about your "thousands" of followers or friends, our brains simply cannot process that number.  Said a piece in Scientific American: We can really only maintain about 150 meaningful relationships at any time.  Study after study confirms that most people have about five intimate friends, 15 close friends, 50 general friends and 150 acquaintances.  Don't believe it?  In an even more interesting piece in the same magazine, it discussed the likelihood of our gradual shift from friends to objects, saying: As more people suffer from insecure attachment styles, the behavior of seeking emotional solace from material objects is likely rising, too...people cling more tightly to their belongings when they feel less confident about the people they care for.  New car, anyone?