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Stocks Lower Because … They Just Are, Dammit!

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The Dow Jones Industrial Average (DJIA) is down for the third straight day. News outlets that have to attribute it to something attribute it to “global tension,” which does appear to be running a bit higher than usual. But the entire exercise of watching an index from one day to the next is a bit silly from the start.

A more interesting question asked by some commentators is, “Does this mean that the bull market is over?” The short answer is no, it doesn’t, but not for the reasons that most people think. The reality is that we have been in a secular (or long term) bear market since 2000, roughly the start of what we call a “Managed Depression,” and this small correction is nothing but a regression to the mean that proves it.

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Back to the Future

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If you want to know the future, ask the kids. It’s going to be their world one day and you can expect that it will be made in their image. Their attitudes, values, and goals will become what drives the economy once they kids of today become the parents and leaders tomorrow.

That’s why UBS asked Millenials (born 1982-1999, or currently 15-32 years old) about their financial and life goals. This is the generation that has been described as narcissistic, broke spenders among other things. If you believe that line, think again. The young people today are one of the most conservative generations yet financially, valuing happiness and security far more than a big pile of cash.

This describes our future, certainly, but more importantly it fits perfectly into the main reason why there are economic and business cycles in the first place.

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The Year Everything Changes

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2017 is still over three years away, but we can already say a lot about it. We know that there will be a new President, although it’s not clear yet which party has the edge this far out. It’s likely that whoever is elected she (as it well could be) will try very hard to take the partisan edge off of Washington and get things done. There may even be a new Congress by then with a completely different configuration. But as big as the political changes are likely to be, the real change will be away from Washingtoon.

That will be the year that the peak Baby Boomers, born from 1952-1959, hit 65 years old and start to retire. Ahead of them are at least 15 million Boomers who will have passed that threshold, with probably 10M or more retiring. With slow growth inflation should still be low and unemployment will suddenly and sharply decline. The Millenial Generation will hit the workforce (and the electorate) in a big way. Combine that with the rising optimism coming on slowly and the boom should fire up.

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Inequality Becomes Intolerable

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How bad has wealth inequality become in the US?  Thanks to a video that is becoming viral, a new discussion about inequality has fired up – sadly, just after our election cycle.  It takes off from work done 6 months ago by Dan Ariely and Mike Norton, first reported humbly in a simple blog.  But thanks to new graphics and explanation it’s lighting up the ‘net in a way not seen before.

As discussed previously, income and wealth inequality is the best indicator of a future slowdown in economic growth around the world.  More attention to this problem is certainly a good thing.  But the context of how this comes to be and what can be done about it remains elusive.  Let’s take a long view and see where the problem came from – and what can be done about it as we work to set up the next period of expansion that comes after the Managed Depression we are in now.

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It Works Out – Because of the Bad Stuff

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Over the past year, we’ve been discussing how the current depression might end.  Two distinct scenarios have emerged as the likely candidates – a slow return to work for everyone as small companies complete a transition to a new economy and a collapse of the world’s economic system.  Which will it be?

There is plenty of evidence for both.  The decline in people of working age in the developed world (and soon the developing!) points to more opportunity and higher wages once everything evens out – something like a golden age.  But the recent World Economic Forum and ongoing trauma in Europe highlight the obvious weakness at the top, starting with leadership.

The best answer for crystal ball readers is an obvious one – both might happen simultaneously.  That’s not a punt, it’s a statement of deep belief that, in the long run, the Free Market is probably going to work.

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