There’s a whiff of the Thirties in the air. Global markets had their worst start ever. But the market is confusing coincidence with causation. In a déjà vu moment there are concerns that oil's collapse is America’s next sub-prime disaster – after all, the big banks have healthy loan and derivative exposure. The other concern is about China’s stock market meltdown that after a 150 percent gain, somehow will trigger a global collapse. While pundits cite these factors in the panic, oil and China have been going down for months so the declines are nothing new or surprising.
The problem we believe is part economic. The main factor is that the US economy once thought to be most powerful, is collapsing under the weight of trillions of printed dollars. The market is adjusting to a “new norm” and finally catching up to reality. America’s policymakers are grappling with the exit from quantitative easing (QE) and a “return to normal”. At home and abroad, investors have lost faith in the markets, and fear that central banks have lost their grip on the economic levers, wasting the seven years not with reform but senseless money printing. During that period, the bull market was supported by free money and the belief that money had 1 value. However the collapse in oil, markets and currencies are indicators that the problem is not in China, emerging markets nor Europe. It’s in the U.S.
Politicization of Policy
Long ago, the world was based on good intentions. Politicians for example, in tackling poverty, raised taxes and closed tax loopholes to finance the programs that were good for us. Or, since guns kill people, gun laws must change and the outcome? More guns it seems. Those extravagant promises of hope, pronounced during every election, attracts votes but few recall that if the promises were so painless, that it would have happened already. So Mr. Rhetoric alone does not satisfy the electorate or investors. The problem of course is that politicians don’t have the power to deliver on those high expectations or even make needed changes, and instead, faced with the sober reality of governing, politicize their decisions to combat the falling esteem and diminished expectations. As such, every policy initiative has become more politicized, prompting policy makers to intervene in the economy –after all the polls can’t be wrong. Monetary and fiscal policies have become politicized whilst fundamental reforms like tax reform or in Canada, a single regulator are left aside.
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