2016: The Beginning of The Crash
Have you ever stood or sat in a room, and experienced this looming feeling that something was wrong? You couldn't quite put your finger on it, but you knew that something, somewhere, just wasn't right.
(For my future reference: Today's date is Friday, January 15th 2016 and the S&P500 is currently at $1921.84)
People can sense that something isn't quite right in society today. Some can even see exactly what it is, but few people actually know what to do with the information. I've been mulling over for some time now if i even wanted to bother writing this. I know that given its needed length to explain all the history and necessary concepts and patterns properly, maybe 5 out of every 100 people who open the take will actually manage to read it through to the end, and of those five perhaps one or two may actually take action. At the end of the day though, my hope is that at least one can benefit from this.
The purpose of this take is to inform people of the troubles that are ahead, so that one can better prioritize their near term goals. What inspired me to write this final myTake (more on the "final" part in a bit) was a question written by an anonymous user, where he basically asked, "How to stop caring about feminism?" This got me into reminiscing why I myself don’t get very involved in the gender wars and why feminism in all its forms doesn’t often make it onto my radar. A lot of it is linked to my current world view, and as this is going to be my last my take, I’m going to do my best to make this one of my best and most informative to date, combining years of my own personal research on current events, as well as creating a good amalgamation of relevant myTakes I’ve written in the past all into this two part myTake. In an unpresidented move for me, I've also decided to close comments on this one which i never do. People who are hungry for more information/discussion on this matter will have to PM me personally. Now, for me to say this is my last take is a bit of a misnomer. This likely won't be my last myTake, but it will be my last myTake before the crash. What crash you ask? Slow down, we’re getting there. First, lets have a candid conversation about the state of modern day feminism.
Now, my basic personal view on feminism has always been that in its simplest form, it is a necessary movement to keep balance amongst the genders. I realize me even giving it that small level of credence will make some heads explode, but my rationale behind it is that a lot of the same enemies of women often end up being the enemies of social progress and stability across the board. You will rarely run into a misogynist who also isn’t simultaneously a racist. So in some instances, I view feminism as a potential ally against these threats which lead to widespread social degeneracy. The problem with feminism and the left in general however is this tendency to self cannibalize its own movement. We’re seeing some of that occur in Germany recently where due to people being far too PC for my liking, ended up covering up sexual assault cases that were being perpetrated against women. The mental gymnastics that the far left had to play concerned a struggle between their excessive need to convince people that we live in a supposed rape culture and their unwarranted need to stand up for certain parts of islamic culture under all circumstances. It caused a PC-short circuit within their brains, but they eventually chose to make women into the sacrificial lambs this time around to cover up for a fraction of islamic refugees who abused the good grace of the German people. I've always been in favour of helping the refugees and still am, however lying about things like this only serve to weaken your position and bolster the position of radicals. Now this has caused a surge in far right movements, movements that I am personally against.
Another example of the left cannibalizing on itself recently can be seen in the Black Lives Matter movement. Now lets get one thing out of the way first. There’s a lot of really dense people out there who don’t really get the simple premise of the BLM movement, but i tend to think of these people as just willful idiots. In any event, the movement at its core is simply to remind the American establishment that black lives matter, not that black lives matter more than all others. That isn’t my problem with the movement. My problem is the self cannibalizing tactics which convinced them that it would be a great idea to do things like barge into a Bernie Sanders rally, (a guy who’s been fighting for civil rights longer than most of these BLM protestors have been alive) and steal the stage away from him, as if he and the others in that ultra-liberal crowd didn’t already know that black people are disproportionally targeted by police in the U.S.. It’s these kind of brain dead tactics that has unfortunately for feminists, infected their little camps as well. I won't go into any of it because we all know the details, but here is the point: The more these groups cannibalize themselves, the more they make themselves vulnerable to external shocks.
The problem with third wave feminism going forward is that the movement has been beaten down into submission so badly (only 1 in 5 women in U.S. feel comfortable identifying as a feminist..a number which has been in decline in recent years), it will have a very difficult time justifying its existence in a world where first world problems take a back seat. What kind of world is that you ask? It’s a world where the S&P500 is down 30 to 60 percent, oil is < $20 per barrel, unemployment back to 2008 levels or worse and instead of worrying about things like "man spreading", sexist air conditioning, sexual assault = guys saying hi…people will be forced to recalibrate their priorities towards putting food on the table. I don’t worry about feminism, nor do I even worry about finding a date these days, because we’re going back to the old rules of the game anyway. The current rules will no longer apply, as the standard of living in the U.S. and other parts of the developed world trends backwards, which will likely change the way you and I engage with each other on some level. In times of economic strife, the clock is often rolled back when it comes to social issues. Instead of progressing forwards, people regress backwards as they seek out a skapegoat for their problems. There is a great amount of historical basis for this. It can be a good and bad thing depending on your point of view, but make no mistake about it…what’s coming is bound to fundamentally alter the way we engage with each other, for better or for worse. I believe that this next crash on the horizon will end up ruining a lot of peoples life progression plans, and can easily exacerbate the social tensions that currently exist today. Now, let’s get into the crash scenario that I, and many others who are smarter than I am see coming.
So you may be wondering what is occuring in the world today while people here and elsewhere are worried and distracted by how uneven their breasts are, or how how short their penis is. Just a few days ago, the Royal Bank of Scotland warned its clients to “sell everything” in anticipation of a “cataclysmic year” that is equal in scope and scale to the crash of 2008.
The S&P500, an index which measures the health of the top 500 companies in the USA (and hence measures the general health of the U.S. economy) has had the worst opening year in its history. Former Dallas Fed President Richard Fisher (one of the government officials responsible for propping up the markets since the 2008 crash) stated publicly in the business media that the markets are likely going down now after being haphazardly taped together by his clique of bankers and academia nuts since 2008.
So what the heck is going on? The western world has been suffering from anemic growth for many years now due to high debt levels. This is nothing new. Not only is public government debt high, but private debt levels are also too high. Student debt, mortgage debt, credit card debt, corporate debt, all of which have ballooned, are once again beginning to slow down the economy. When people are loaded up on debt they acquired while interest rates were low, their lifestyles become addicted to it like a drug user is addicted to cocaine. Take the drugs away, and the addict suffers from convulsions and withdrawal symptoms. The economy is suffering from withdrawal symptoms, now that the U.S. Federal Reserve has decided to take the punch bowl away from the party animals (ie. Americans) who thought it would be a great idea to load up on debt while interest rates were low (P.S. later in this two part take, I will show you that regardless of whether you are an American or not, this will still affect you. So don't get too comfortable). On December 16th 2015, the Federal Reserve made a monumental decision to raise interest rates 0.25%, which is the first time they’ve raised interest rates from its near 0% level in 10 years, with plans to continue raising them in 2016. It’s a sea change in policy which represents the Federal Reserves acknowledgement that this overvaluation in the U.S. economy has blown up too large, and must be deflated. But just as in 2000 and 2008, the Federal Reserve doesn’t understand that bubbles can’t be deflated. They burst.
To outline the danger, I turn back to the crashes that had occurred in 2000 and 2008 for reference. The pattern for crashes in the U.S. economy is this:
- Step 1: The Federal Reserve raises interest rates when they see a bubble forming (and by the way, a bubble is basically an asset class which has become overpriced due to market hype/mania),
- Step 2: The Federal Reserve lies to the public about the existence of a bubble in order to keep investors and people in general from rushing to the exits too quickly
- Step 3: The U.S. economy weakens due to the interest rate rises, making the economy vulnerable to external shocks that are beyond the Federal Reserves control.
- Step 4: The stock market and hence the economy crashes, creating a tsunami of joblessness, slashed wages, more millenials forced to live back with their parents, delayed retirement, racial and gender divisions, etc
These have been the steps which led to the crash in the U.S. economy in 2000, 2008 and now 2016/2017, each one being progressively more devastating than the last one. Lets start with a history lesson of what happened in the year 2000.
Leading up to the year 2000, the U.S. Federal Reserve decided to raise interest rates in order to deflate the growing bubble in the NASDAQ (which is an index of stocks which measure the general health of the top technology/internet companies in the USA. Think Twitter, Apple, Microsoft and Facebook). Most of you may not recall any of this because you were probably in grade school, but the late 1990’s saw a huge growth in the internet, and internet-based businesses were popping up everywhere. It got to a point where absolutely garbage companies were being valued at millions of dollars simply because they were internet-based, and not because they had any real fundamentals backing the company. The Federal Reserve spotted this and hence decided to raise interest rates while lying about the existence of a bubble. This article from the Wall Street Journal in the year 2000 outlines exactly what the Federal Reserve saw and did. (Note: Alan Greenspan was the guy in charge of the Federal Reserve at this point in time, and a bull market represents a sustained increase in the value of a particular asset, which in this case is referring to the NASDAQ). From the article:
Mr. Greenspan's conclusions are evident in his recent words and actions. He has backed away from suggesting the market is overvalued, yet feels that monetary policy should reflect the market's impact on the economy. The bull market's surprising endurance has driven the Fed into its first sustained drive to raise interest rates in six years. Friday's report that unemployment fell to a 30-year low of 3.9% means that campaign will continue, as the Fed is expected to raise rates again -- possibly by half a point -- at its May 16 meeting.
So note the fulfilment of steps one and two here, as well as the eire similarities to today’s current situation. Greenspan sees a bubble/overvaluation, but instead of screaming and warning people about it from the hilltops, he backs away from warning people and retreats into denial of its existence, while simultaneously raising interest rates to put pressure on the economy in order to deflate the bubble and bring prices back down to a normal level. Now what was the external shock to fullfill step 3? An investment firm named BFS Investment Management outlined it well:
A number of economic and political factors inflicted serious damage on the stock market during the last two months of 2000. The first was the general uncertainty in the political climate due to the prolonged contest for the White House. The second was the combination of tight money and high real rates of interest, which the Federal Reserve Bank had imposed in its fight against the threat of inflation and an overheated economy. The third was the sudden arrival of a slowdown in the economy, which was heralded by many companies' pre-announcing revenue and earnings shortfalls. It began to look as if the slowdown might escalate from an inventory correction to a full - fledged recession. Finally there was a wave of damaging year-end tax selling, which investors had postponed from the usual late November/first week in December period in the hope of selling into a stronger market. No such luck! The market ended weakly and appeared poised to continue south in January
So political, and tax uncertainty which normally wouldn’t cause much issue in the markets, ended up crashing the market because the economy was in a weakened state due to Federal Reserve interest rate policy. Think of it like HIV/AIDS. It’s not the AIDS itself which usually kills people infected with it (just as the raising of interest rates itself is not what kills the U.S. economy). It’s the weakened state that AIDS puts the body in, which makes it overly susceptible to sicknesses/diseases it would normally be able to fight otherwise (and for my analogy, the sicknesses/diseases represent these external shocks beyond the control of policy makers in the U.S.) After the combination of rising interest rates and external shocks was made, the economy collapsed. The NASDAQ fell 80% and the S&P500 followed suit with one of its worst crashes in recent history. Since the S&P500 represents the health of so many companies, where it goes, so too does the U.S. economy:
Now, lets fast forward to 2008.
This time, the new bubble that had developed was the housing market. Real estate in the U.S. was practically being given away in the 2002 to 2006 era. There was a point where banks would loan to people who had practically no income to buy a house with no downpayment required. This became known as sub-prime lending, because they were giving money to sub-optimal people who couldn’t afford to pay the banks back. But at the time, it didn’t matter because interest rates had been kept low and the banks were making money. All that started to change however when the Federal Reserve started raising rates again in order to curb the bubble. Lets go through the steps again.
First, they raise interest rates in 2006, apparently for no real reason but to pop what appears to be an obvious over-extension/overvaluation/bubble market, this time being the U.S. housing market.
Then, they lie about the existence of a bubble in order to goose the public (Note: the new head of the Federal Reserve at this point was Ben Bernanke, the guy you see in this video saying that the housing market was perfectly fine, even though it ended up having one of its biggest crashes in history a few short years later):
So what was the external shock this time? This time, the shock came in the form of oil prices which had ballooned upwards to $140 dollars per barrel, which brought the economy to a screeching halt. With this, people could no longer afford to prop up house prices. High oil prices began eating away at peoples ability to finance debt, and the housing market + general economy suffered dearly for it.
Notice how spikes in the price per barrel of oil often (but not always) caused nearly every recession that has occured in the USA since the 1970's. 2008 was no exception as you can see.
With steps one, two and three fulfilled, the stock market market crashed which brought down the world economy in 2008. That crash became known as the great recession, and if it wasn't for the Federal Reserve and China throwing U.S. politicians a lifeline in the form of trillions of dollars in bailout money, the world economy would have been obliterated. investopedia.com gave a good synopsis of why the housing bubble burst in 2008:
An increase in interest rates that puts homeownership out of reach for some buyers and, in some instances, makes the home a person currently owns unaffordable, leading to default and foreclosure, which eventually adds to supply.
A downturn in general economic activity [due to high oil prices] that leads to less disposable income, job loss and/or fewer available jobs, which decreases the demand for housing.
Demand is exhausted, bringing supply and demand into equilibrium and slowing the rapid pace of home price appreciation that some homeowners, particularly speculators, count on to make their purchases affordable or profitable. When rapid price appreciation stagnates, those who count on it to afford their homes long term might lose their homes, bringing more supply to the market.
The impact of this crash is still with us today. 5.5 million jobs evaporated and the wages of people who were still lucky enough to have a job were slashed
In Part II, which can be found from my profile, we fast foward to today's current situation, and line up the progression of these steps which are signalling one of the worst financial crashes in U.S. history, and hence the world, which has already begun in 2016. We will also go over briefly ways in which one can insulate themselves in the short run, and potentially make great gains throughout this process. I will also go into the U.S. presidential election, offering my two cents on how this situation could impact the electoral race and I will spend some time explaining why this will likely affect you too, even if you aren't American.