The New Normal

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Dow Jones Industrial Index

Monday 24 august 2015 12:45 pm EST

This morning felt a bit like 9-11-2001 except that I don’t have CNN anymore—I cut the cable in 2010. Back then I was assessing whether the planes were aiming at the weak point in the towers in order to cause maximum structural damage. The lower the hit, the higher the stress created by the dead load left above the point of impact. The analysis was spot on. The first tower to go down was the one hit lowest. Today, QE (quantitative easing) is being stress-tested although no one on the Street appears to notice.

Prices are out of whack—in the UK and London; in Vancouver real estate; with 0% car loans, etc. People do not have a sense of security about their future or the future of their kids; small businesses and independent professionals are under attack from franchises and multi-nationals; and nobody wants to raise their family in a tower. It’s a different story in Georgian row houses in walkable neighbourhoods or Greek villages, both places that I visited this last month.
I was staying in a hotel in Athens 2 blocks from Syntagma Square when the Greek government voted to accept the European Unions drastic terms. Yet, no one in the country seemed much concerned. Yes, they were withdrawing their daily quota of 40 euros, but the line ups were barely 4-deep. In the Peloponnese everything appeared to be ‘business as usual’. Should Greece fall off the face of the financial cliff, the Greeks are going to find a way out. It is the Euro that is not time-tested and may not prove as resilient.
China is a distraction. The growth chart in China does not mirror the S&P. 1.3 billion people are not simply going to disappear… though their economy may sag for as long as it takes bad government policy to reverse. Given that it is a totalitarian regime, that may be a very long time. Look for the RMB to go lower. We know governments can’t hold pegged currencies forever (UK, Argentina).
The first crash today—and on the heels of a 500-point drop on Friday it can be thought of as the ‘second shoe to drop’—is testing the new world order. The one that everybody really thinks could be done better, but not until we recognize that money is just one of the macro measurements we have for measuring progress in constructing a fair and prosperous society—globally and not just in America.
QE has brought us here. Either we move down or the governments keep printing money and pumping the system. I’d say better to move down. As the Boomers near the grave some economists are asking us to look towards investments enhancing social functioning—rather than consumer spending—to create the new momentum. Proponents of ‘Secular Stagnation’ see investments in infrastructure as sustainable government debt given the cheap burden of debt in low interest rate periods. Then, there are the positive benefits to individuals (employment) and society as a whole (improvements in capacity, productivity and energy savings). When Walmart, Coca Cola and McDonalds are among the bulwarks in the
Berkshire Hathaway portfolio I can see room for improvement. In the ultimate ‘I don’t practice what I preach, Warren Buffet will not be eating at the chain restaurant, shopping the mass retailers or drinking sugary beverages. Thus, we face a gap between what we know is good for us personally, and where we have to go achieve the greatest benefits financially. Sorting this all out would be beneficial to the economy as a whole, not just to the wage-strapped families and individuals. If not an outright rebranding, then at least a move to quality and improved nutrition seems like a logical theme for government investment.
Electric cars and gas at $0.50 per gallon is where we need to be in 20 years. Clean air (finally) and robust government health care. Walkable neighbourhoods—crime free—and livable cities. Health and fitness will be the new trends once living 20+ years longer focuses our attention on how well we can actually live.
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Dow Jones Industrial Index
Monday 24 august 2015 4:00 pm EST – close
The Dow closed 3.6% down (588 points) today adding dramatically to its 3% drop on Friday and experiencing a suspension of trade after the opening 1000-point fall. [Tuesday up date: another 1.3% down].
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