By Haddon Libby
A self-radicalized man kills or hurts more than two hundred people during Bastille Day celebrations in Nice, France followed by some of the Turkish military staging an unsuccessful coup against a corrupt Erdoğan regime that helps DA’ESH (a/k/a ISIS or IS or ISIL) in selling their oil to Japan while providing medical services to DA’ESH jihadists followed by yet another series of cop killings here in the United States.
Meanwhile Donald Trump names Governor Mike Pence as his Vice Presidential choice thus creating the super-political-couple name of TrumPence which, when translated in the urban dictionary, means ‘the amount of return on investment on a con job.’ So that we do not leave out ‘crooked’ Hillary, how did she and her husband amass a $300 million fortune over the last fifteen years?
With all of that in the foreground, global stock markets have rallied while U.S. stock markets have reached all-time highs despite the United Kingdoms’ vote to exit the European community. To combat the increased likelihood of global recession caused by that vote, central banks around the world have stated that they will pump more money into the markets in order to keep economies buoyant while keeping interest rates at all-time lows thus causing investors to flee fixed income investments for equities that pay dividends thus creating potential valuation bubbles not too dissimilar from the mortgage bubbles of less than a decade ago.
While we are thinking about bubbles, global debt levels have grown by $57 trillion over the last ten years to more than $200 trillion which equates to nearly three times the world’s Gross Domestic Product while the global derivatives market is more than $700 trillion. With $700 trillion of derivative risk trading on $200 trillion of debt that is reliant on a world economy that generates about $70 trillion in revenues a year, it seems reasonable to question the long-term economic viability of this debt and derivative load on the world economy. In the event that you do not know what a derivative is, it is a contract where one firm (typically a bank or insurance company) sells a risk to another firm.
Those debt levels have been funded by the extraordinary liquidity efforts of the world’s central banks that have also managed to create the lowest interest rate levels in the history of the United States. Meanwhile, China is in the grips of a real estate bubble of their own with rampant financial fraud that is not too dissimilar to our problems of less than a decade ago.
If all of this is not enough to cause one to pause, a combination of job fluidity between countries and the increased use of technology are marginally improving the lives of the world’s poorest people while enriching the world’s wealthiest at the expense of an eroding middle class. Helping to expedite this global equalization of pay are treaties like NAFTA struck by the Clinton Administration and the Trans-Pacific Partnership that the Obama Administration has been trying to get through Congress.
When one considers all of these factors, does it make sense that borrowing costs are at historic lows and the stock prices of many companies are at historic highs? Does this reflect a new global bubble or a new norm?
While we will not know the answer to those questions for some time, the next time someone you know starts railing against the wealthiest 1%, remind them that they railing against themselves. To be in top 1% of income earners worldwide, you need to make only $35,000 per year. This is why our middle class is eroding in an increasingly borderless world.
Haddon Libby is an Investment Advisor for Winslow Drake and can be reached at 760.449.6349 or HLibby@WinslowDrake.com.
