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Truth seeker's avatar

Hi thank you so much for taking the time to answer my question.

There is one point I forgot to mention in my question.

Europe and the USA’s economies are stagnating, debt levels too high and politically a complete mess.

But there is an incentive for the USA to push Europe into war with Russia.

It gets rid of an economic competitor but most importantly, with another world war on European ground, capital flows from Europe to the USA will accelerate. USA economy then expands.

One could argue that without world war 1 and 2 (where the same happened) the USA would not be a superpower.

Before world war 1, the USA was almost bankrupt.

ebear's avatar

"The stock market is fairly meaningless when it comes to the real economy of the plebs as it’s removed from any connection to the average citizen. Only a small percentage of American citizens, for instance, hold stocks, and that’s by way of things like IRA and retirement portfolios at their jobs—i.e. things which are not actively paying out dividends that they can use on a daily basis, but rather are more akin to investments for their retirement."

I'd have to disagree with this statement. While true, it doesn't capture the totality of the situation which is far more complex than most people realize. For starters, many pension and insurance funds are directly invested in stocks, or are holding bonds purchased during a low interest rate environment which is no longer the case. Those bonds, on the books at face value, are in no way worth their stated value, and are worth even less in a liquidation panic scenario. Same goes for stock holdings. In my time as an investor I've seen three such events and yet another could be in the offing. Given the leverage in the system, which is off the charts, any such dislocation would have a direct impact on the banking system and indirectly on publicly traded companies inasmuch as their bond holdings would be under threat as well as their stock prices, due to inability to refinance at favourable rates, or in the extreme, at all. I could go on, but you'll get a better sense of the situation by reading Doug Noland's credit bubble bulletin than anything I could come up with:

https://creditbubblebulletin.blogspot.com/

"A tiny almost negligible percentage of people actually actively make some kind of money from ‘stocks’. As such, it remains a sort of self-enclosed system whose ups and downs are disconnected from real society."

I'm one of those people, being a stock and options trader from 1989 to 2008 when (ironically) I took Jim Cramer's advice to traders: "if you're up big, take some off." Well, it ALL came off and I haven't looked back. I wouldn't go near the markets today as they are far more volatile and subject to far more severe dislocations than in previous years. The point is, I'm not alone. Many of us bailed and never returned. This has had a major impact on that sector of the market which few understand and even fewer are willing to take risks in. I'm referring to mining and oil exploration. Without significant investment in that high risk environment the cost and availability of primary inputs produces a significant drag on downstream activity where most people are directly or indirectly employed. Under those circumstances you can only keep the financial game going as long as cheap credit is available and we can push the day of reckoning into the future. Well that future has arrived and shortages of primary inputs are now appearing, and at the worst possible time, when financing is expensive and "investors" much like Elvis, have left the building.

I agree, the day to day movement of the S&P500 or DJIA is relatively meaningless to the average person, but inflation, unemployment and the attendant social disarray are very meaningful to people who live from pay check to pay check, which is pretty much everyone these days.

Just as one example:

https://www.cnn.com/2023/07/27/business/yellow-corp-bankruptcy/index.html

I'm a child of the 60's and entered the workforce in the 70's during the 'stagflation period" that Paul Volcker allegedly ended by driving interest rates to 16% resulting in mortgage rates approaching 21%. Can you even imagine the impact something like that would have today? Jobs were very hard to find back then. I went to sea working on oil tankers because it was the only way to make any real money. Likewise a close friend went to work in the Arctic, and another moved to Germany to find work as absolutely nothing was locally available.

Sorry to be so long-winded but my major point is that all these things - stocks, bonds, and the economic activity they represent are directly or indirectly connected, and it's just impossible to separate them. It's the Butterfly Effect write large, and I suspect we'll see that play out in the not to distant future. https://en.wikipedia.org/wiki/Butterfly_effect

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