The world is always ending. Especially if you use gold company commercials and Tik Tok influencers as your primary source of financial advice. Sure, bad stuff does happen, and we’ve all been through a lot over the past couple decades. From 9/11 to the financial crisis of 2008 to the COVID pandemic, clearly the world involves perils, and sometimes the idea of thinking what just might come next can be emotionally draining.
If, however, fear of disaster, which is really a fear of the unknown, is the primary driver of one’s decision making, the dominant trend of humanity, which in my opinion, is things tend to get better over time, can be missed.
Or, framed from an investing perspective, according to market research from the Capital Group based on S&P data, the S&P 500 Index, which is a widely accepted barometer of the U.S. stock market in general, has over the past 94 years generated positive investment returns (including dividends) in 73% of one-year periods, 84% of three-year periods, 88% of five-year periods and 94% of 10-year periods.
Those are pretty good odds, so attempting to go through life looking at the world economic glass as half empty can end up getting pretty expensive from an opportunity cost perspective. Does this mean I think of investing as a “set it and forget it” endeavor where all we need to do is throw our money into the stock market and then go back to Pina Colada’s on the beach in Lala land while we wait for our money to grow?
Absolutely not. I’ve been through too much with markets to ever sleep with both eyes closed. Instead, the beach analogy I might ponder is that financial markets can be like a beautiful day on a surfboard. The best waves will never be caught while sitting out on the beach, but regardless of how much fun the surfing is, it’s always smart to pay some attention to the weather on the horizon, and, especially with my personal “issues,” never forget that lurking somewhere below is an 18-foot Great White Shark thinking about snack time. Because the only way to survive that incredibly rare and hard to spot risk is to be out of the water when he decides your beach is the buffet line, investment risk management to me is a never-ending continuum of dichotomy.
So yes, despite being relentlessly optimistic about the future of humanity, I am always looking for the dorsal fin poking through the water line. The vast majority of the time, the coast is clear, and most risks are manageable. Right now, however, a hard-to-see risk may be emerging, and it’s something I think all investors —, heck all Americans — may need to keep an eye on. That risk is China.
Not in the way we’ve all been programed by our American propaganda machine to think about China. I don’t see China as some powerful red menace, looking to pick a fight with America as they take over the world. Oh, don’t get me wrong, I think the CCP would entertain all these things, but that’s not the risk I am concerned about. The risk I am concerned about is kind of the opposite. Instead of being the world’s rising maniacal power, I am coming to see China as such an absolute financial catastrophe that has the capacity to destabilize and create risks for us that we may not yet fully understand.
See, China has been enduring a slow-motion financial train wreck which seems to be accelerating over the past few months. Its second largest property developer, Evergrande Group, recently sought financial protection in bankruptcy court, and its largest property developer, Country Garden, appears to be close behind. In addition, one of the nation’s largest trust investment firms, which is a bit like the Chinese version of an American investment banking firm, is currently in default on some of its investment products. If even one of these events were occurring in the U.S., the stock market would be a mess, which may be the reason more and more high-profile investors in the U.S. are concluding that China may be “uninvestable.”
As it turns out, the Chinese economic miracle is looking more like a debt fueled bubble in the process of bursting. We are learning perhaps the only thing more dangerous than a financial bubble powered by speculators is a financial bubble powered by political party members.
Central planning doesn’t work, never has, never will. Whether it’s Washington, D.C., Beijing or Brussels, bureaucrats and politicians are not good for investing. The Chinese appeared to have combined modern central banking and Marxist ideology into a central planning fiasco many decades in the making. If the question is “what could wrong?” I think the answer we are seeing unfold is “eventually everything.”
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
