By R.L. Avery
Gravity works and at some point the pendulum will swing. Everything works in cycles. I have talked about quantitative easing and its effects. If you look to the far left of the chart, you will see where the Federal Reserve Bank started its third round of support for the economy and/or the Stock Market.
I think you can fairly argue that what the Fed did in 2009 was needed, after that, I’m not so sure. At some point the bill has to be paid.
I thought I would give a few explanations as to why the market is defying gravity other than the Greenspan put, Bernanke put, and so on.
At the top of a cycle companies are hard pressed to continue productivity.
They have squeezed margins, cut staff and wages and other expenses all that they can. In order to increase shareholder value Executives resort to other means. Some people call it ‘financial jiggery’.
They use the cheap money available to them to buy back their own shares. This decreases the amount of outstanding shares and increases the value for current shareholders.
Companies start to search for partners. Mergers and acquisitions. They find a company that is a competitor and try to buy it or merge. This results in more productivity as they can now lay off any workers that are considered redundant. More expenses cut and they have just taken more market share which tends to give them more price leverage. For a consumer not necessarily great news.
Another reason for the markets incredible climb is the search for yield.
As people who do not have an income are desperate for return on their savings during a zero interest rate policy, they become enticed into the market. This has worked great for them, so far.
This, by the way, is happening worldwide.
• Japan announced last week that they were officially in recession. Their market went straight up as the dollar sank and hedge funds et. all return to the yen carry trade.
• China is again pumping money into its banks and
• Mario Draghi is promising more support for European Markets.
This all seems such a bore doesn’t it? Until one day it’s not. That piper likes to get paid and the pendulum swings back, not to the middle, but as we’ve seen time and again, all the way over to the other side.
On a different note, I would like to talk about economics and foreign policy and about ethics.
This past week was the anniversary of the revolution in this country.
During that time nearly a million people immigrated to the United States in order to avoid the fighting. We see this in many parts of the world. It changes demographics and economies.
Ideally people should be able to remain in their own countries and live a decent life, supported with basic human rights. Human rights in this country have been under attack for decades.
What is happening now is beyond the pale.
I admonish you to support the people in this beautiful country and their struggle for justice and basic rights.
I feel it is inexcusable for Mexico’s trade partners to remain silent in this regard.
If, while looking for missing persons in our own countries, we came across nine mass graves, society would erupt.
If we found that government officials were behind it, people would go to jail. How can we as expatriates and visitors turn a blind eye?
Please write your local government official and let them know how you feel. Join Amnesty international, support the United Nations.
These organizations do terrific work and they are not worried about securing lucrative contracts.
We are the people we have been waiting for. Stand up for what you believe.
By R.L. Avery