With stock markets plunging this past week, the conventional wisdom is saying that we are due for a sharp pull back in equities, citing various factors such as a potential win by the Democratic Party in the 2020 elections, and even the coronavirus being blamed for disruptions in the supply chain of global manufacturing. At any other time in history, these two factors would indeed spell an imminent period of market doom and gloom. However, the bear case has nothing against the bulls because the bulls and their stalwart enablers refuse to stop the party that they have the power to keep going.
What we have in this modern era is what investors lacked in decades past: data, artificial intelligence, and loose monetary policy. Basically, ever since practically everything has been put on an electronic grid, it has generated massive amounts of data. From shopping trends to viewer activity and internet browsing and even key-logged activity from your mouse and keyboards, everything that we do and see and touch and pinch on a screen is being collected and aggregated, mined and analyzed, which is then fed through the artificial intelligent algorithms which make sense of the data. The output is predictive models, quantified to precision leaving little room for human error and guesswork.
Therefore, everything that we do, or that we are going to do, or that we don’t even know yet that we want to do, is already known by the corporations that can afford to analyze the data we freely give them. They know the future… and have the power to keep it going. The added ingredient to make it that much more easier is loose monetary policy. Central banks worldwide virtually print and loan out money at low or zero interest rates, making it cheaper to encourage consumers to stimulate the economy with easier access to credit. Despite this having the potential for creating runaway inflation, all the loose cash in the system is welcomed because who in their right mind is going to turn down free money?
Parties, by their nature, keep going because the food being served keeps tasting better, the drinks are easier to imbibe, the desserts are more succulent than the last, and the music just doesn’t stop (ever been to brunch at Bagatelle?). More guests keep coming in, and they bring their friends, and therefore the food and drinks and music needs to get better, tastier, and louder, because more people are joining the party that just doesn’t want to stop. And anyone who dares to say that the party ought to be toned down is quietly asked to leave… or if something is wrong with the food, or the drinks begin getting watered down, or the same song sounds like it’s been played too often, anyone who points these things out is also asked to quietly leave or is outright ignored. The party needs to continue because it just feels too good to ever show any sign that it’ll end.
The party isn’t over because the data is showing that the people want more of it, even if it means ignoring all the red flags. Investors want profits, shareholders demand accountability, and the board of directors are not going to say ‘no’ to free money, freshly printed by the Federal Reserve, willingly injecting financial dopamine into everyone’s drinks. Therefore, cash flows will continue to increase, profit margins will get fatter, and those with the data will continue to mine it for information on how to make consumers keep coming back for more.
Politicians aren’t going to say no to free money by corporate donors, nor are any one of them willing to take the thankless responsibility of being the lonely voice telling their constituents that they need to cut back. The party needs to keep going… because no one wants it to end because no one wants to be the last one stuck with the check.
Because of this, even a win by Bernie Sanders, or an epidemic, like coronavirus, are not enough to stop the party. Artificial intelligence is already being put to use to assist doctors in finding a cure or vaccine for coronavirus. AI is also being put to work to improve efficiencies in an economy where there is more equal distribution of wealth. Deregulation by policy makers is creating an incentive for more efficient use of labor and resources, which also requires better AI tools. Because of this, the party will still keep going strong. There may appear a few pauses and pullbacks…. but so long as monetary policy remains free and loose, the markets will continue their rise and the party will continue.
For this reason, and others to be expanded upon in my blog, it is wise to get invested for the long term. The party has to continue, and you’re due your piece of the pie and your share of the festivities before the music stops.
My Current long term picks: NVDA, OKTA, MU, TSM, WM, MSFT, SPLK, XLNX