Tag Archives: markets

Overreaction

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This is one such. The headline and subhead say it:

The Days of Set-and-Forget Investing Just Ended for Many Americans
President Trump’s economic policies are sending investors out of US stocks and into cash, bonds, gold and European defense stocks

The newswriters illustrate their claim with this anecdote:

For years, Yoram Ariely hadn’t touched most of his investments, preferring to ride the stock market’s ups and downs. Last Tuesday, he decided he had enough.
The 82-year-old unloaded almost half of his stock investments, fearful of the effects of President Trump’s economic agenda, and tariffs in particular. He may get rid of more still.
“The decisions are changing daily,” said Ariely, a retired business owner in Longboat Key, FL.

Therein lies the problem with this sort of reaction. Buy and hold—set and forget in newswriters’ lexicon—has always been a fine, if not flashy, way to build wealth when it’s done from a young age and continued through retirement/geezerdom. That includes riding through the ups and downs, including corrections and bear markets. Some investors, who change the stocks (and/or bonds, real estate, gold and silver with their reputation as inflation hedges, etc) occasionally (over weeks to months), will do better and others worse than buy and holders. Some traders, who change their vehicles on a more frequent basis, down through daily trades, also will do better and others worse. Slow but steady produces, over the long term, steady and favorable results, if without the flash and the heady rush.

And that’s the key: over the long term, which takes lots of patience and an emotional willingness to ride through the inevitable downturns, corrections, and bear markets, even more to add to holdings during those down turns. Worries about the disruptions and dislocations associated with President Donald Trump’s (R) economic and political moves are overblown in the sense that these are just another of those inevitable disruptions. Buy and hold remains a viable, middle of the road wealth building technique.

On the other hand, buy and hold has never been the right path for those of an age—those retired geezers—for whom there’s little time left in their lives in which, and reduced steady income with which, to recover from a sharp or relatively deep (or deep) market downturn. For those folks, preserving the wealth, the capital, that they have accumulated becomes more important than continuing to try to increase their wealth. The latter entails more risk than is optimal for those with shortening remaining life spans and reduced regular income.

Trump’s moves are just another of the disruptions inevitable in an investing environment; they present no reason for anyone to change their investing style.

“Austerity”

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I do not think this means what some news writers think it means. In a Wall Street Journal article, the news writer used the term this way:

A budget deficit contributes…by injecting more demand into the economy via spending than it subtracts via taxes.
…
But deliberately shrinking the budget deficit, via fiscal austerity, or expanding it, via fiscal stimulus….

What he’s talking about here is reducing government spending as austerity. Government spending is one component of the overall spending that is the demand component of GDP; the other component of demand at the GDP level is consumption spending by us citizens. But reducing government spending, while reducing that overall component of demand, isn’t austerity. That reduction simply reduces the level of competition between government on the one hand and us citizens and our private enterprises on the other hand for the same goods and services. That reduction in the government’s side of that competition at the very least reduces upward pressure on the price we citizens and our businesses face for those same goods and services, even eliminates pricing pressure in some areas, and in some few areas, allows prices to fall.

That’s not austerity, that’s an early step in prosperity.

The news writer again misused the term:

Fiscal austerity does the job with much less collateral damage than tariffs. Inflation goes down instead of up. Trading partners don’t retaliate. There’s no special-interest lobbying or corrosive uncertainty over who gets hit with tariffs for how long.
Austerity’s main drawback is that it slows growth.

Reducing government spending isn’t the only path to private prosperity, and done by itself can be decidedly reductive of that. Taxes directly take money away from both us citizens and our private enterprises. Some taxation is necessary for our government to do the things we hire it to do—pay our national debt, see to a defense capability adequate to the threats we face, and satisfy our nation’s general welfare in the ways delineated in our Constitution. Leaving taxes alone—or raising them—whether in isolation or in order to fund spending unrelated to those three purposes takes money away from us and our businesses that we’re better situated to allocate to our actual needs and wants.

Those taxes are the source of austerity inflicted on us by government. Reducing those taxes to the more minimal level needed to satisfy those three Constitutional requirements reduces austerity far more directly than reducing spending: every dollar left in our and our businesses’ pocketbooks and not taken by government is a dollar we can allocate more efficiently than government is capable of doing.

Reducing government spending—the news writer’s definition of austerity—actually indirectly facilitates prosperity if not actually increases it, and reducing taxation—not addressed at all by the news writer—directly increases prosperity by reducing real austerity, the taking of money from private coffers and putting it in government coffers. Doing both in concert with each other—that’s the far opposite of austerity.

What’s the Value?

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Cities in the People’s Republic of China are running out of cash while their debts, already vastly excessive, are rapidly growing.

What to do?

In August, a gas supplier [Xinjiang East Universe Gas] in China’s far western Xinjiang region struck a solution to settle $25 million [¥183.3 million] of overdue gas bills racked up by a few state-owned entities in Changji city. Instead of cash, the gas supplier will effectively take over 260 unfinished apartments in a French-themed residential compound being developed by its clients.

That’s become the go-to technique for city governments to welch on settle their debts.

Starting last year, Monalisa Group, a Guangdong-based ceramic tiles manufacturer, accepted apartments as payment instead of cash from its real-estate clients. By September, it had accumulated $19 million [¥139.3 million] worth of investment properties on its balance sheet.
…
More recently in June, Shanghai Urban Architecture Design proposed to take over 115 apartments from developer Greenland Holdings—a Fortune 500 company that defaulted on its bonds in 2023—to settle some $10 million [¥73.3 million] of debts. In December, Sunfly Intelligent Technology, a producer of LED lighting and other electrical equipment, settled $50 million [¥366.6 million] of debts with a group of developers including Country.
In the past three months, three unusual debtors emerged—the county-level police departments in China’s poor, mountainous Guizhou province.

The PRC already has accumulated as many as 90 million empty housing units, units still unsold after all this time.

For companies like Xinjiang East Universe that provide services to China’s cash-strapped local governments, getting half-built apartments “is better than getting nothing[.]”

But only if those structures actually get sold. These unsold apartments are unsold for a reason. How does using them to pay debts make their creditors whole? All the move does is unload the borrower’s white elephant onto the creditor, leaving the creditor still out in the cold with no functional, practical repayment.

White elephants, indeed: most of those apartment structures aren’t even completely built. It’ll cost those creditors additional money to finish them and make them habitable. With that glut of finished housing units already clogging the market, peddling these for less than anything like what might pass for market rates, a depressed price necessary to get them sold, or even rented, will only further depress the PRC’s housing market.

That’s not good for an economy where so much private wealth—family wealth—already is tied up in real estate from the housing boom of a few years before the Wuhan Virus Situation. Residential property represents some 25%-30% of the PRC’s GDP.

So What?

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Fred Krupp, President of the Environmental Defense Fund, is worried that if the incoming Trump administration cuts off subsidies for battery cars, we’ll be ceding battery car leadership to the People’s Republic of China.

Leave aside the fact that our battery car component supply chain (as with so many other of our industry production) remains dependent on the PRC. Pushing battery cars on Americans will increase our dependence on that enemy nation.

Be that as it may, Americans don’t want battery cars. This is demonstrated by the continued need for government subsidies—the tax monies us average Americans remit to our Federal government—in an ongoing effort to con us into buying them anyway, along with outgoing Biden administration efforts to dragoon us into buying these white elephants by raising fuel and emission “standards” to usurious levels intended to ban ICE vehicles.

More than that, satisfying the so-called need for battery cars, the blandishments of left-wing climate Know Betters like the EDF notwithstanding, will not have any material effect whatsoever on slowing the non-existent existential climate crisis that the climatistas are on about.

The subsidies are a waste of our tax money and badly want elimination.

Let the PRC be saddled with—dare I say hobbled by—that transportation dead end and its enormous costs.

Retreating from Net-Zero?

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That’s the claim of The Wall Street Journal editors.

The climate policy retreat is accelerating as Citigroup, Bank of America, and Morgan Stanley this week joined an exodus from the Net-Zero Banking Alliance. Energy reality can bite.

The “retreat” consists of five banks out of the 140 that are members of the NZBA, a gang of banks sworn to refuse the business of any enterprise that isn’t sufficiently climate-sensitive and -activist enough to suit the syndicate. It’s true enough that the five are major players in the world of banking, but they’re still only five.

The editors wrote, also, that mutual fund manager Vanguard had pulled out of the Net Zero Asset Managers pledge. That’s one out of 350 enterprises that took that pledge. The editors wrote further that JPMorgan Asset Management, BlackRock, and State Street Global Advisors have left Climate Action 100+, a collection of some 600 investors who pressure businesses to comply. Three are part of this “retreat.”

However.

Leaving these syndicates and changing their ways of climate-woke behaviors are two different things. We need to see these banks’, investors’, and business’ altered behaviors over some period of time before it’s believable that they’ve changed more than their public rhetoric.