Connect with us

Economy

Why Are Traders and Investors so Actively Engaged in the Stock Market?

Published

on

Source: TradingView Bull Markets SPX

The global economic recession which kicked off towards the end of the Bush presidency and the beginning of the Obama presidency reached a nadir around March 9, 2009. At that point in time, the SPX closed at 676.53. Fast forward to the present day, the SPX currently stands at 3,934.83. The financial charts don’t lie.

There has been a clear and unprecedented upswing since 2009, fuelled largely by government-backed programs to stimulate economic growth. A series of massive stimuli, backed by Federal Reserve Bank bond-buying programs and quantitative easing have facilitated a booming US economy.

During the Obama presidency, from 2008 – 2016, the QE programme embarked upon large-scale purchases of securities and Treasury bonds. The financial crash that began with the sub-prime mortgage crisis and heralded the collapse of Lehman Brothers was a massive global economic catastrophe. The Federal Reserve Bank acted quickly to shore up confidence in the economy by cutting interest rates to 0% – 0.25%.

Before QE kicked in, the Fed owned $477B of federal government-issued debt, out of a total of $5.8 trillion. This amounts to 8% of all federal debt. After the stimulus policies enacted by the Fed and the government, the Fed injected $900 billion + $292 billion + $800 billion into the economy. In terms of percentages, the Fed owned $2.5 trillion worth of Treasury securities, amounting to 18% of all debts.

Source: Dow Jones Industrial Average 2008 – Present Day

The objective of these monetary policies was to lower the cost of borrowing, to hyper-stimulate the economy to get businesses back into the swing of things. Since the global financial crisis, the world economy has been with it characterized by historically low, sometimes negative, rates of interest. The Fed also purchased $1.8 trillion in mortgage-backed securities offered through Fannie Mae and Freddie Mac, between 2009 – 2016.

All of this money flooding the markets had to get soaked up into the economy. The funds found their way into savings accounts, fixed-interest-bearing accounts, retirement accounts, stock markets, debt repayments, living expenses, et al. The Dow Jones Industrial Average (DJIA) enjoyed unprecedented gains in the 12 years since the financial crisis hit.

Stock Market Gets a Massive Boost from Government-Backed Stimuli

During the Trump presidency, 2016 – 2020, the coronavirus pandemic struck in December 2019, and has roiled financial markets and ravaged the global economy ever since. To combat the massive decline in global demand, governments and central banks around the world have pushed the largest stimulus packages ever in history.

In the US, tens of millions of workers were furloughed, businesses shuttered operations, and economic activity ground to a halt. Were it not for the concerted efforts by the House, the Senate, and the Executive, financial ruin would have ensued. At $4 trillion, the tax breaks, loans, grants, and bailouts were the largest stimulus ever to be passed in the US.

Some $2.3 trillion was allocated to businesses, $651 billion in tax breaks, and $454 billion was allocated to the Federal reserve to stabilize financial markets. The PPP (Paycheck Protection Program) allocated $670 billion towards businesses impacted by the coronavirus. State governments and public agencies received a total of $253 billion, and $884 billion (approximately 20%) of relief when two workers and their families. Additional stimulus was passed, and it will pass again under Biden.

Stock markets around the world collapsed in March and April 2020, following consecutive months of global shutdowns, amid a rampant novel coronavirus pandemic. The quick response of governments around the world to lockdown their countries to foreign visitors, quarantine the sick and infirm, and attack the virus with every single resource available in the medical, pharmaceutical, scientific, public and private sector paid dividends.

Source: Macrotrends NASDAQ Composite Index

While the loss of human life has been horrifying, governments have gone to great lengths to shore up economic activity to prevent the worst possible scenario coming to light: collapsed economies around the world. The stock market boom has been fuelled by a glut of new traders to the scene, many of whom heretofore had no interest in trading the financial markets.

The coronavirus created new economies, new realities, and new ways of doing business. In person was replaced by virtual, and seemingly moribund SMEs came roaring back to life with new ways of doing business.

Many business sectors were able to successfully transform operations during the pandemic. These include therestaurant industry, VR sector, the retail industry, e-learning, remote working, entertainment, pharmaceuticals and medical devices, virtual healthcare, contactless technology, logistics, and electronic transfers.

Impact of the Pandemic on the Financial Markets

There can be no denying the devastating effects of the pandemic on economic activity. Government imposed shutdowns have all but eviscerated the energy industry, causing the prices of crude oil, natural gas, and coal to plummet. These commodities enjoy rising prices with increasing demand. With shrinking demand and reduced supply, many energy companies have closed up shop completely.

Yet, the failure of energy companies has been a boon to the fittest operators, by removing excess supply, and shoring up the existing capacity with the companies who remain. Major energy titans like Texaco, Exxon Mobil, Shell, British Petroleum, and the like have been able to keep themselves afloat by way of massive reserves, government-backed loans and stimuli, and diversification strategies.

While travel and leisure stocks plunged (Carnival Cruise lines, Royal Caribbean, Princess, Delta Airlines, American Airlines, British Airways, Virgin Atlantic, Boeing et cetera), other commodities like gold have boomed. The likes of SPDR GLD, Barrick Gold, Newmont Corporation, Rio Tinto plc, and others have enjoyed strong gains. Much the same is true of platinum.

But the biggest winners during 2020, and in the opening quarter of 2021 remained the tech stocks. The performance of the NASDAQ composite index is a case in point. The election of Joe Biden to the highest office has brought with it a reshuffling of priorities vis-a-vis how the US will approach technology moving forward. A focus on green energy is the order of the day. This puts many oil, coal, and natural gas companies in a spot of bother, but it puts companies like Tesla, myriad solar-focused companies, and alternative fuel SMEs in the spotlight.

Given this new green focus, the stocks to watch for February include the likes of Greene Concepts Inc (OTCPK: INKW), a company which sells bottled water and recently sold out all of its supplies on Amazon. Another company with a forward-focus is Alternet Systems Inc. (OTCPK: ALY) which has been manufacturing ReVolt Electric Motorcycles, and yet another is a rather interesting turnaround with Barrel Energy Inc (OTCPK: BRLL) which was in the oil and gas sector, and now manufactures lithium-ion batteries.

For the full year ending December 31, 2020, the NASDAQ gained 43.2%, its fifth best year in recorded history. The Dow Jones Industrial Average gained 7.3%, and the S&P 500 index rose 16.3%. The performance of the NASDAQ is extraordinary, given the hullabaloo that ensued during the year. The tech-heavy index was led by strong performers such as Google, Netflix, Apple, Microsoft, Amazon, Tesla, Facebook, all of which comprise an agglomerated chunk of the NASDAQ.

Innovation, particularly cloud computing, sophisticated IoT technology, and the imminent roll-out of 5G across the board are expected to be the paradigm shift in the economy, led by the tech sector. Electric vehicles, driverless vehicles, robotics, virtual meetings, computing capabilities, and wearable tech are certainly exciting and potentially lucrative fields for the new economy.

How Long Will the Bull Market Last?

That’s the $100 million question that everybody wants to know. We already know that there are several gauges to use to assess the mood of the market, including speculative sentiment, unemployment numbers, inflation forecasts et al. One of them is the VIX (volatility indicator). The CBOE volatility index gauges the performance of the market in real time and determines the level of risk in the markets.

When the VIX is rising (when it’s high, it’s time to buy), there is increasing volatility and traders and investors tend to buy up stocks. When the VIX is falling (when the VIX is low look out below), that tends to be a signal that there will be future volatility, which spurs selloffs. Currently, the VIX is at a level of 21.53, up markedly since the previous close. The VIX is an important economic indicator with regards to stock market expectations, and volatility.

Continue Reading
Comments

Economy

Turkish Economy as the Reset Button of Turkish Politics

Published

on

Democracy has a robust relationship with economic growth.  Barrington Moore can be seen as one of the leading scholars focusing on the relationship between political development and economic structure with his book titled “Social Origins of Dictatorship and Democracy” first published in 1966. According to Moore, there are three routes from agrarianism to the modern industrial world. In the capitalist democratic route, exemplified by England, France, and the United States, the peasantry was politically impotent or had been eradicated all together, and a strong bourgeoisie was present, and the aristocracy allied itself with the bourgeoisie or failed to oppose democratizing steps. In Moore’s book, you can find out why some countries have developed as democracies and others as dictatorships.

It can be argued that economic development facilitates democratization. Following this argument, this article is an attempt to address the Turkish case with the most recent discussions going on in the country. One of the most powerful instruments used by the political opposition today is the rhetoric of “economic crisis” that has also been supported by public opinion polls and data. For instance, the leader of İYİ Party Meral Akşener has organized lots of visits to different regions of Turkey and has been posting videos on her social media account showing the complaints mostly centering around unemployment and high inflation. According to Akşener, “Turkey’s economic woes – with inflation above 15%, high unemployment and a gaping current account deficit – left no alternative to high rates.”

Another political opposition leader, Ahmet Davutoğlu raised voice of criticism via his social media account, saying “As if monthly prices hikes on natural gas were not enough, they have introduced 15% increase on electricity costs. It is as if the government vowed to do what it can to take whatever the citizens have.”

A recent poll reveals that about 65 percent think the economic crisis and unemployment problem are Turkey’s most urgent problems. Literature on the relationship between democracy and economic well-being shows that a democratic regime becomes more fragile in countries where per capita income stagnates or declines. It is known that democracies are more powerful among the economically developed countries.

The International Center for Peace and Development summarizes the social origins of democracy in global scale as the following:

“Over the past two centuries, the rise of constitutional forms of government has been closely associated with peace, social stability and rapid socio-economic development. Democratic countries have been more successful in living peacefully with their neighbors, educating their citizens, liberating human energy and initiative for constructive purposes in society, economic growth and wealth generation.”

Turkey’s economic problems have been on the agenda for a long time. Unlike what has been claimed by the Minister of Interior Affairs Süleyman Soylu a few months ago, Turkish economy has not reached to the level which would make United States and Germany to become jealous of Turkey. Soylu had said, “You will see, as of July, our economy will take such a leap and growth in July that Germany, France, England, Italy and especially the USA, which meddles in everything, will crack and explode.”

To make a long story short, it can be said that the coronavirus pandemic has exerted a major pressure on the already fragile economy of Turkey and this leads to further frustration among the Turkish electorate. The next elections will not only determine who will shape the economic structure but will also show to what level Turkish citizens have become unhappy about the ongoing “democratic politics.” In other words, it can be said that, Turkish economy can be seen as the reset button of Turkish politics for the upcoming elections.

Continue Reading

Economy

Finding Fulcrum to Move the World Economics

Published

on

Domenico Fetti / Wikimedia Commons

Where hidden is the fulcrum to bring about new global-age thinking and escape current mysterious economic models that primarily support super elitism, super-richness, super tax-free heavens and super crypto nirvanas; global populace only drifts today as disconnected wanderers at the bottom carrying flags of ‘hate-media’ only creating tribal herds slowly pushed towards populism. Suppose, if we accept the current indices already labeled as success as the best of show of hands, the game is already lost where winners already left the table. Finding a new fulcrum to move the world economies on a better trajectory where human productivity measured for grassroots prosperity is a critically important but a deeply silent global challenge. Here are some bold suggestions

ONE- Global Measurement: World connectivity is invisible, grossly misunderstood, miscalculated and underestimated of its hidden powers; spreading silently like an invisible net, a “new math” becomes the possible fulcrum for the new business world economy; behold the ocean of emerging global talents from new economies, mobilizing new levels of productivity, performance and forcing global shifts of economic powers. Observe the future of borderless skills, boundary less commerce and trans-global public opinion, triangulation of such will simply crush old thinking.

Archimedes yelled, “…give me a lever long enough and a fulcrum on which to place it, and I shall move the world…”

After all, half of the world during the last decade, missed the entrepreneurial mindset, understoodonly as underdog players of the economy, the founders, job-creators and risk-taker entrepreneurs of small medium businesses of the world, pushed aside while kneeling to big business staged as institutionalized ritual. Although big businesses are always very big, nevertheless, small businesses and now globally accepted, as many times larger. Study deeply, why suddenly now the small medium business economy, during the last budgetary cycles across the world, has now become the lone solution to save dwindling economies. Big business as usual will take care of itself, but national economies already on brink left alone now need small business bases and hard-core raw entrepreneurialism as post-pandemic recovery agendas.

TWO – Ground Realities:  National leadership is now economic leadership, understanding, creating and managing, super-hyper-digital-platform-economies a new political art and mobilization of small midsize business a new science: The prerequisites to understand the “new math” is the study of “population-rich-nations and knowledge rich nations” on Google and figure out how and why can a national economy apply such new math. 

Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago.Today,a $1000 investment buys on global-age upskilling on export expansion that were million dollars a decade ago.  Today, a $1000 investment on virtual-events buys what took a year and cost a million dollars a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 80% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

Apply this math to population rich nations and their current creation of some 500 million new entrepreneurial businesses across Asia will bring chills across the world to the thousands of government departments, chambers of commerce and trade associations as they compare their own progress. Now relate this to the economic positioning of ‘knowledge rich nations’ and explore how they not only crushed their own SME bases, destroyed the middle class but also their expensive business education system only produced armies of resumes promoting job-seekers but not the mighty job-creators. Study why entrepreneurialism is neither academic-born nor academic centric, it is after all most successful legendary founders that created earth shattering organizations were only dropouts.  Now shaking all these ingredients well in the economic test tube wait and let all this ferment to see what really happens.

Now picking up any nation, selecting any region and any high potential vertical market; searching any meaningful economic development agenda and status of special skills required to serve such challenges, paint new challenges. Interconnect the dots on skills, limits on national/global exposure and required expertise on vertical sectors, digitization and global-age market reach. Measuring the time and cost to bring them at par, measuring the opportunity loss over decades for any neglect. Combining all to squeeze out a positive transformative dialogue and assemble all vested parties under one umbrella.

Not to be confused with academic courses on fixing Paper-Mache economies and broken paper work trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Economic leadership teams of today, unless skilled on intertwining super-hyper-digital-platform-economic agendas with local midsize businesses and creating innovative excellence to stand up to global competitiveness becomes only a burden to growth.

The magnifying glass of mind will find the fulcrum: High potential vertical sectors and special regions are primarily wide-open lands full of resources and full of talented peoples; mobilization of such combinations offering extraordinary power play, now catapulted due to technologies. However, to enter such arenas calls for regimented exploring of the limits of digitization, as Digital-Divides are Mental Divides, only deeper understanding and skills on how to boost entrepreneurialism and attract hidden talents of local citizenry will add power. Of course, knowing in advance, what has already failed so many times before will only avoid using a rubber hose as a lever, again.  

The new world economic order: There is no such thing as big and small as it is only strong and weak, there is no such thing as rich and poor it is only smart and stupid. There is no such thing as past and future is only what is in front now and what is there to act but if and or when. How do you translate this in a post pandemic recovery mode? Observe how strong, smart moving now are advancing and leaving weak, stupid dreaming of if and when in the dust behind.

The conclusion: At the risk of never getting a Nobel Prize on Economics, here is this stark claim; any economy not driven solely based on measuring “real value creation” but primarily based on “real value manipulation” is nothing but a public fraud. This mathematically proven, possibly a new Fulcrum to move the world economy, in need of truth

The rest is easy  

Continue Reading

Economy

Evergrande Crisis and the Global Economy

Published

on

China’s crackdown on the tech giants was not much of a surprise. Sure, the communist regime allowed the colossus entities like Alibaba Group to innovate and prosper for years. Yet, the government control over the markets was never concealed. In fact, China’s active intervention in the forex market to deliberately devalue Yuan was frequently contested around the world. Ironically, now the world awaits government intervention as a global liquidity crisis seems impending. The Evergrande Group, China’s largest property developer, is on the brink of collapse. Mounding debt, unfinished properties, and subsequent public pressure eventually pushed the group to openly admit its financial turmoil last week. Subsequently, Evergrande’s shares plunged as much as 19% to more than 11-year lows. While many anticipate a thorough financial restructuring in the forthcoming months, the global debt markets face a broader financial contagion – as long as China deliberates on its plan of action.

The financial trouble of the conglomerate became apparent when President Xi Jinping stressed upon controlled corporate debt levels in his ongoing drive to reign China’s corporate behemoths. It is estimated that the Evergrande Group currently owes $305 billion in outstanding debt; payments on its offshore bonds due this week. With new channels of debt ceased throughout the Mainland, repayment seems doubtful despite reassurances from the company officials. The broader cause of worry, however, is the impact of a default; which seems highly likely under current circumstances.

The residential property market and the real estate market control roughly 20% and 30% of China’s nominal GDP respectively. A default could destabilize the already slowing Chinese economy. Yet that’s half the truth. In reality, the failure of a ‘too big to fail’ company could bleed into other sectors as well. And while China could let the company fail to set a precedent, the spillover could devastate the financial stability hard-earned after a strenuous battle against the pandemic. Recent data shows that with the outbreak of the delta variant, the demand pressure in China has significantly cooled down while the energy prices are through the roof. Coupled with the regulatory crackdown rapidly pervading uncertainty, a debt crisis could further push the economy into a recession: a detrimental end to China’s aspirations to attract global investors.

The real question, therefore, is not about China’s willingness to bail out the company. Too much is at stake. The primal question is regarding the modus operandi which could be adopted by China to upend instability.

Naturally, the influence of China’s woes parallels its effect on the global economy. A possible liquidity crisis and the opaque measures of the government combined are already affecting the global markets: particularly the United States. The Dow Jones Industrial Average (DJIA) posted a dismal end to Monday’s trading session: declining by more than 600 points. The 10-year Treasury yields slipped down 6.4 basis points to 1.297% as investors sought safety amid uncertainty. The concern is regarding China’s route to solve the issue and the timeline it would adopt. While the markets across Europe and Asia are optimistic about a partial settlement of debt payments, a take over from state-owned enterprises could further drive uncertainty; majorly regarding the pay schedule of western bondholders amid political hostility.

Economists believe that, while a financial crisis doesn’t seem like a plausible threat, a delayed response or a clumsy reaction could permeate volatility in the capital markets globally. Furthermore, a default or a takeover would almost certainly pull down China’s economy. While the US has already turned stringent over Chinese IPOs recently, a debt default could puncture the economic viability of a wide array of Chinese companies around the world. And thus, while the global banking system is not at an immediate threat of a Lehman catastrophe, Evergrande’s bankruptcy would, nonetheless, erode both the domestic and the global housing market. Moreover, it would further dent Chinese imports (and seriously damage regional exchequers), and would ultimately put a damper on global economic recovery from the pandemic.

Continue Reading

Publications

Latest

Intelligence41 mins ago

The Role and Place of the Taliban on the Global Map of Islam: Challenges and Threats

The rise to power of the Taliban (a terrorist organization banned in Russia) in August 2021 has raised a number...

Human Rights3 hours ago

Millions in Yemen ‘a step away from starvation’

The crisis in Yemen, now in its seventh year of war, continues unabated, with thousands of people displaced and millions...

Economy5 hours ago

Turkish Economy as the Reset Button of Turkish Politics

Democracy has a robust relationship with economic growth.  Barrington Moore can be seen as one of the leading scholars focusing...

Africa Today6 hours ago

South Sudan ‘determined to never go back to war’

South Sudan is “ready to turn a new page” towards greater peace, development and prosperity, Vice-President Rebecca Nyandeng de Mabior said in her speech in the UN General Assembly...

Health & Wellness9 hours ago

WHO backs Regeneron COVID-19 drug cocktail – with equal access, price cut

The Regeneron antibody drug cocktail – casirivimab and imdevimab – has been added to the World Health Organization’s (WHO) list of treatments for COVID-19 patients, the...

South Asia11 hours ago

What, in fact, is India’s stand on Kashmir?

At the UNGA, India’s first secretary Sneha Dubey said the entire Union Territories of Jammu & Kashmir and Ladakh “were,...

Africa Today15 hours ago

Niger to Improve Women and Girl’s Access to Nutrition and Health Services

The Nigerien government will be able to provide its population with better health coverage with financing approved today by the...

Trending