As I sit here watching what in a normal world could have turned into a big down day in the stock market, I felt compelled to re-visit one topic I discussed about a year ago. When the current administration started taking us down the socialism path I was curious what had happened with prior countries when they had made conversions into socialism from other types of structures. After all the conservatives all cried out that Barry was taking us down a path of destruction. You always have to be careful with these political hyperbole's because they are always designed to manipulate opinions. I remember when Barry won, Larry Williams said in his forecast that we will finally resolve the matter once and for all about whether socialism does or does not work. I think we are seeing it does not work too well, but the party is not over yet. The question is what if any effect on stock prices with this transformation have if it takes place?
I set out to study stock prices where countries converted to Socialism and found something interesting. The stock prices did not crash or rise consistently, but they did do one thing 100% of the time. They followed the path of the US stock market. In other words they basically deferred to the leader. There is no reason in the philosophy of socialism that should result in stock prices crashing. The whole system is designed to make everyone mediocre. As a result, that means stock prices should flat line in this type of system or be directionless. This does seem to happen, and they seem to take their lead from the places where innovation and success is "allowed." With that as a back drop, the $64,000 question then becomes, who would we follow?
There are those out there that say it will be China. The problem with this theory is that there is no encouragement for innovation or success, they are basically the kings of copying others and doing it more cheaply. If you add on top of that the corruption that goes on there that makes ours look like the junior varsity squad, it seems highly unlikely we would follow their path. I have written in here that I think the China bubble is about to pop and the whole house of cards is about to fall. They are more highly leveraged by far in real estate and construction than we were at our peak.
Where else to look? The rest of the BRIC countries? I doubt it. The net answer is that we are going to continue to be the leader in spite of how badly Barry or anyone else tries to mess things up. It is all a question of relativity. We will still be the best on a relative basis. I love the video that was advertised on the news networks all of last year calling for Armageddon. It seems the Stansberry folks and Martin Weiss are the two biggest fear monger guys out there. They both called for a fundamental event that would change everything about how we live, to occur last year. Now last year is behind us, it has not happened, now more new videos about how it will happen this year. Please hire someone to kill me if I ever produce on of these videos where I read the power point to you. These are beyond annoying. I tried to make it through the Weiss one and about stabbed myself from the pain of how annoying it was. Both of these guys base most of this on the debt situation and what has to happen to the dollar in their view to resolve all of this.
One of the problems I see with the arguments is that increasing the money supply just by itself will not cause inflation. What is required is velocity in the turnover of money. With loans almost impossible to get at banks, there is no velocity at all. The rates may be low, but you can't really take advantage of them, hence no velocity. This is why inflation is not really moving up as much as some say it should be. Maybe that is in the future, but I don't see it anytime soon. I have said over and over that it is of no value to me as a trader to try and use whatever macro views I have to trade my money. They just don't translate well enough into shorter time frames.
As I watched the stock market go down steeply early today, my thought process was as follows. First, I thought the PPT would save it because of all that is at stake politically. If the stock market were to roll over big, that would dash the last hope Barry has of a second term. It is really the only thing good that has happened on his watch, other than killing UBL. Then I thought that was somewhat of an over reaction of my part. Manipulating stock prices is something the other side will also do if they get back into power. There will be scandals, corruption, gay affairs, you name it. That is not unique to either side. What is also not unique is all the trade offs that get made in governing. It is so hard to get everyone to agree on anything, that they are constantly forced to give in to things they don't want to get things they do want done. This is why nothing ever really changes much. If the other side gets in and tries in unravel some of these socialist things that have been instituted, they are going to run into trouble. Nobody wants to endure any short term pain to get long term problems solved.
Repubs win, but overall over the course of a year it will make no difference. My second conclusion is an asterisk to the first. If by chance the Democrats were to wind up with all 3 again, we could really have some serious problems. As long as they don't have all three they are limited in what they can do to destroy us. Since we really have no precedent to follow if we did became a completely socialist European type of country, I don't think it will ever happen. Again, I bet on the favorites not the long shots. As a result, I think after the election it will be just more of the same crap, kicking the can down the road. There is a critical mass point, and I don't know where that is, but I don't think we will see it this year. I do expect at some point a pretty sharp stock decline to occur, but not of the magnitude that these chicken little's are calling for.
By the way, for several thousand dollars they will tell you how to avoid it, by subscribing to all their ancillary advisory services. How convenient for them!