Interest rate chart rising bond prices
Burj Al Arab
Burj Al Arab
The share prices are rising and rising Dow Jones, Dax, FTSE etc. break one record after another
I can no longer understand the current developments on the worldwide financial markets. Dow Jones, FTSE, Dax etc. are reaching new record highs, despite the unsolved geopolitical problems still looming. The indicators that I know of for evaluating the financial markets (money supply, interest rates, job market, company news) make me very pensive, so why should the stock prices keep on rising!? Has the old "bubble" been blown right up again through the cheap money of the last few years? Will the bubble really burst this time? There is so much money washing around at the moment that Private Equity / Venture Capital corporations can set ever larger stock funds and exert pressure on the companies they have taken over. The pressure that investors are laying on the corporations for high returns is changing the thinking of everyone involved, and provoking a geopolitical split in the world community. Recent election results in Central and South America show the first indications of a polarisation, in my view. Even Castro's obsolete system in Cuba is experiencing a comeback. Accoring to Forbes, Castro himself is a smart investor, better than some of his neighbours in Florida :-) The secretive hedge funds add to the mix, with the ability to drive the indexes using their powerful leverage. I just call it "globalisation", or "neoliberal development".
However you define it - how will this develop in the long term? At the moment, the (still) largest consumer and largest economy in the world imports more goods than it exports. The US trade balance deficit breaks one record after another. How long can the US keep this up? In my opinion, the US economy consists of one enormous consumer credit. Sure, it is better to consume, even if I don't have the money for it, than to hoard all my money in a savings account (as happened in Japan). The consumer goods must be produced and thus provide jobs or maintain them indirectly. But eventually credit must be serviced, or it can induce a credit crunch. So I see a great danger for the world economy, when the consumer can no longer service his debt. This can be caused by unemployment and by higher interest rates. The interest rates must rise at some point, as there will be a raw material shortage due to the unfettered consumption, which will drive inflation. Raw materials are only available in limited amounts, and shortages will be quickened also by the copying of the credit-financed consumer society by other countries. I also don't understand where new markets for consumer goods are supposed to come from!? Every copied credit-financed consumer society will eventually reach saturation point, should the raw materials even last long enough for this pint to be reached.
What does this situation mean for the investor? Where can I still invest? Shares, bonds and gold have high values. Real estate that is not in personal use is of course also affected by these developments. If the mood swings, rent payments can also potentially fail, and the property bought dear now loses value. I think this is the best time for traders, as everyone knows that something will happen. It is also a good idea to participate in the profits made giving credit, for example in the form of subordinated issues. Entry in the areas of Private Equity / Venture Capital could still be worthwhile, whereby one should not expect as much as in the past. For long-term oriented investors it has become very difficult to make a good decision. One possibility is to bet on natural resources, but if consumption collapses then no-one will need so much raw material. If the idea of sustainable production manages to establish itself, I think investment in the areas of water supply and renewable resources would be sensible. Renewables include plants which can be used as replacements for the classic resources such as oil and gas. Further, in this way active development assistance can be given and markets which were given up as hopeless can be reactivated.
I am in any case taking the profits, and getting the "new" state subsidies in the "Alterseinkünftegesetz" (Retirement Income Act) as a recompense for the taxes taken from me from my other capital investments. May sound quite smart, but is in the end madness! Only when all the chaps in their fine suits panic, and the popular press cries sell!, will I change back to a buyer, in order to have to pay even more taxes later :-)
In this sense: "everything will be alright - or maybe not".
