At the 2024 WEF in Davos about Rebuilding Trust (who on earth would ever trust the Davos crowd?), the newly elected President of Argentina Javier delivered a speech, which must have made the majority of the attending Elite rather uncomfortable because of its simplicity and clear libertarian message: capitalism over the last 200 years lifted the world from anemic growth over the last 3000 years or so to unprecedented prosperity. My readers should listen to the brief speech, which has been translated in English by AI in Milei’s accent
(pic.twitter.com/8OAGELuqxl). Milei said the West “is in danger because those who are supposed to have defended the values of the West are co-opted by a vision of the world that inevitably leads to socialism and thereby to poverty.”
MF: This is very much evident in Germany currently where the socialists and green interventionists are in the process of destroying the once productive and powerful German economy and its society. I shall return to the economic suicide German politicians are committing further below but suffice is to say that if the current leadership remains for much longer in power, the German economy will continue to contract.
Milei concluded his Davos speech by exclaiming: “Do not be intimidated by parasites who live off the state, do not surrender to the political class that only wants to stay in power and retain its privileges.” I hope the German people will heed Milei’s words and support the German farmers’ demonstration, and vote the current parasitic government out of office for their own good.
In earlier reports I wrote about the Destructive Forces of Monetary Inflation. However, I omitted to see how free money leads to the demand for “free stuff” in a society – of course only to be administered by the left leaning government bureaucracy or by a populist leader. I should like to add that the impact of free money on the proliferation of socialist policies is exacerbated by next-to-zero, or even more so, by negative interest rates. This is so because all kinds of government sponsored programs including some sort of basic income can be financed at no cost (at least no immediate cost).
When the Fed launched QE1 in December 2008, I expected and had actually written about it regularly that it would become a permanent monetary policy and cause unintended damages on the economy and on society. But I did at the time and even until recently, not fully understand that it is obvious that QE programs nurture and foster socialism, interventionism, and the expansion of governments' involvement in the economy as well as warfare. Furthermore, if the governments through the central banks which they control can create an unlimited quantity of money, what would prevent them from buying up entire companies?
This leads us to another important issue. Ayn Rand believed that, “There is no difference between communism and socialism, except in the way of achieving the same ultimate goal: communism proposes to enslave men by force, socialism by voting.”
She omitted to state that, easy monetary policies and artificially low interest rates encourage the accumulation of debts, which when excessive enslaves people as well. Moreover, excessive legislation, regulation and taxes can also enslave people. For socialists, power is the principal objective and not the state of the economy and the standard of living of people. In the case of Germany, this is particularly visible if we look at industrial production, which has been declining over the last few years.
From a valuation point of view, European stocks are relatively cheap compared to US stocks, and they may have begun to improve against US stocks because increasingly, voters realize what disastrous consequences left-wing policies have brought along. A shift towards right-wing politicians might just avert economic and social disaster and lead to a continuation of European equities doing reasonably well. Noteworthy is also the fact that European stocks are barely higher than in 2007, and many financials hover below the 1998/1999 peak.
However, if we talk about depressed assets, there are other assets that seem to be far more depressed than European stocks. Among them are certainly Chinese and Hong Kong equities, which have sold off since the beginning of the year by another 10% before recovering somewhat. In the case of Hong Kong, the Hang Seng Index is now down by 54% from its March 2018 high. In March of this year the Hong Kong bear market will celebrate its six-year anniversary (a more appropriate wording would be “to mourn”), which from a duration point of view, would argue for a low in the next few months. I concede that towards major lows a downside acceleration – commonly referred to as a selling climax - is distinctly possible. But this seems to have already occurred in the middle of January of this year, especially among property stocks, while a large number of stocks show signs that they have already bottomed out after moving up strongly from the October 2023 low.
An unorthodox thought came to my mind recently. Currently, the entire world is speculating online in the Magnificent Seven and in US semiconductor stocks. Young and trendy Asians and even European retirees show little interest in their own stock markets but they buy enthusiastically Nvidia (NVDA), etc. US institutions are also loaded up with the Magnificent Seven because these are the stocks that are moving up at present.
Now, let us assume that for whatever reason the NASDAQ 100 Index and all these “sure” technology winners break down and enter a bear market like we had after year 2000. Wouldn’t this be the best thing that could happen to other sectors in the stock and other asset markets. Wouldn’t money flow out of the overweight tech sector into other relatively depressed sectors such as financials, energy and emerging markets?
Lastly, concerning the Biden Administration, let me remind my readers of the words by Friedrich von Hayek who stated:
“[Socialistic] economic planning, regulation, and intervention pave the way to totalitarianism by building a power structure that will inevitably be seized by the most power-hungry and unscrupulous.”
With kind regards
Yours sincerely
Marc Faber
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