As the S&P500 stock market index reaches a new all-time high, there is a disturbingly low amount of people screaming the apocalypse is nearing.
The bubble nobody seems to be talking about consists of inflated stock prices, hyper overvaluations of companies with smaller realistic earnings. While some companies are profitable, the reports behind that are worth looking into.
Moreover the interest rate on government-issued bonds, or the “interest yield curve” has fallen to critically low levels, it is apparent from the first look that the situation is grim and hopeless. While we’re floating in limbo and waiting for a solution to miraculously appear the incessant consumerism continues.
There’s usually two schools of thought when it comes to the recent equity uproar. On one side we’re in an expansive business cycle, we’re in a time of greater and quicker economic growth. Things have never been better, we got technological advancements that weren’t available to us 50 years ago(and these stocks are driving the economy). Over that, we’re in a time of prolonged peace and apart from a few trade hiccups, the global economy trade routes are flourishing. There’s no reason for the growth to stop just yet, so the experts say.
But things haven’t been so glee lately, technical indicators of measuring economic activity in industry and business have already started to show signs of slowing down and that is causing great concern amongst economists in the world.
For instance, the German 10-year bond yields have fallen negative for the first time ever, matching the ECB’s -0.40% deposit rate. The ECB has already employed monetary policies to stimulate the economy. But wherever the monetary policy fails to do its part, the governments will have to start spending in order to increase the money supply.
The stock markets are indirectly related to interest rates of treasury bonds.
In order for our economies to survive without major disruptions, governments will have to adjust their fiscal policies to collect higher revenues from the businesses and jobs they have provided. We may be looking at tax increases, inflation, and similar measures made to take the wealth from the population and return it back to the center.
In the meantime, currencies can expect to get weaker, the Euro has weakened tremendously already, due to increased supply and weak economic factors. The US President, Donald Trump, said that he wishes to do the same to the dollar, as an increased supply gives you an economic advantage — albeit in the short term.
Our long-term strategy is next to none, it is well apparent that the stock markets will not be able to climb indefinitely, and we don’t seem to have a plan for the future. If the state officials continue to treat the economies as irresponsibly as they have always (just remember the great financial crisis of 2008), then the repercussions will be devastating once again. Personally, as a millennial who’s come out of one of the worst recessions scarred and traumatized, I do not want to go back there again. The central banks and governments still do not want to admit the putrid situation they’re in, but we’re pretty much screwed.
A shining light at the end of the tunnel, to end this parade once and for all is the rise of cryptocurrencies. Bitcoin, Ethereum and even Facebook’s Libra offer us digital ways of managing money, finances, and economies with the help of the transparency and immutability of a blockchain. The old legacy systems are inefficient, prone to corruption and leak value all over the place. Why stay stuck in the past, when we have discovered something much better which can put an end to all of this chaos. That’s my solution and it’s certainly leaps and bounds better than what we currently have. I would definitely not wait around for things to get worse before they get better.
