After a decade of an incredible bull run, the charts of most US stock indexes look quite unappetizing.
The last very big red monthly candle especially, the biggest certainly since 2008 but perhaps for this entire 21st century, probably has most traders quite worried.
The US economy in particular is booming, so you’d expect stocks to boom. Yet while the US economy is quite big at $21 trillion, its growth of circa 3.5% – 1% in real terms after inflation – is almost nothing. Especially compared to the 10%+ for China and the surrounding area.
In an age of globalization, where for corporations there is effectively just one world economy, what happens anywhere affects everyone.
And 2018 has been quite an eventful happening year. Venezuela, of course, collapsed. Many other countries saw their money collapse too, although to a far lesser extent.
Russia may be seen as hostile by some, but for corporations it was probably good business until their money effectively collapsed and sanctions made the business environment difficult.
China too is blamed for cheating by some, but in some ways the cheating benefited corporations. With potential taxes now on perhaps as good as all Chinese exports, corp profits may be hit, especially for China manufacturing tech companies.
China, moreover, has or will probably reach a limit to its speedy growth as it moves from developing to a developed country, with some areas quite developed. Some more than New York or Frankfurt. Yet overall not quite at the same level of sophistication.
China’s current growth is around the same level as during the Great Recession of 2008-10. Meaning from their point of view, things aren’t going as well as they used to.
Still, were America to grow at 6%, Trump would not miss one opportunity to tell us of it. Plus, the current growth, although a bit lower now, is kind of flat since 2016. The picture in Shanghai markets, however, is different.
This is a very strange chart. There’s that massive bubble in 2007, and then the big crash. Then stocks kind of mirror the economy in a way, but another little bubble is seen in 2015.
That’s presumably due to the then devaluation of Yuan. Traders perhaps thought that would lead to an uptick in growth, but that didn’t happen. So there’s a sell off, with an uptrend following until September 2017.
In September 2017 we had a number of articles that featured a black/blank image in solidarity with the China based crypto businesses that were being closed. From then on, Shanghai stocks sideway a bit, then downtrend.
So are cryptos to blame? Well, we can’t run simulations, so we don’t know for sure, but one can argue the case and with good evidence.
Bitcoin saw almost nine months of green candles, with the one red candle being in September 2017. Ethereum likewise has a similar chart.
You’ll recall commentators complaining about there being so much money around, but everyone was hoarding it. Just the tech giants had some half a trillion under the bed so to speak.
This space gave them an excuse to go out and spend. There were startups rising, there were ideas banded around, there was hope and optimism and there still is to some extent.
That probably spread to the wider economy, restoring confidence. Businesses could not stay still any longer, they had to move or face their Kodak moment.
So they did, investing tons of money on research, development and so on. The financiers started throwing cash around. The people were having fun. Things were happening.
Then China had to go ruin it all, perhaps because they saw us as idiots rather than pretty smart “kids” getting the economy going again.
Which is fine, we can route around, but if they don’t open Shenzhen then we’ll have to build a new Shenzhen in an area where we are free to “play.”
Perhaps the very western friendly Balkans. They have a highly educated population, but rock bottom wages. General security there is now not far off from western standards. Land is plentiful and plenty of people are sitting around doing nothing. Well, they can build our computers and IoTs with blockchains and everything.
Obviously we’re not writing an academic study, so there’s plenty of details and qualifications. Technically China did not quite close Shenzhen. What they closed was crypto businesses, which effectively amounts to the same thing because cryptonians were and are the ones getting that money under the bed and to startups in IoT or wherever else.
So perhaps the downtrend that followed in Shanghai stocks was just a coincidence, or maybe it was the direct result of a disastrous government policy that shook confidence in western investors regarding the safety of their investment in what is still a very authoritarian country.
So they started taking money out of investments and presumably back under bed. Nvidia, AMD and other stocks got hit. Sentiment slowly begun to change and now we have that massive red candle.
In crypto all moved with speed. There was a lag as the closing of the world’s second economy probably didn’t have an instant effect. Then the crypto cooling down in China and South Korea gradually spread to other areas in this pretty terrible year for cryptos and a pretty terrible year for all investments.
It ought to be a lesson, we hope, to all governments. This space is an engine of growth. You take an hostile attitude towards it, you’re taking an hostile attitude towards your entire economy.
Whether everything we’re building works or not, remains to be seen, but we have to see it, we have to try, for there is no real harm while there can be plenty of benefits.
Plus, what are the alternatives? Biotech, of course, and the biohacking movement is pretty cool in some ways, but is complementary to this space. SpaceX is Musk’s toy, we can’t all build rockets. A new iPhone now is getting boring. So what do we play with if not all this blockchain stuff?
Obviously there needs to be some rules, like no cheating, but the approach ought to be “how we can help,” rather than “these pesky kids” with their high maths, algorithms, and all that code nonsense.
The current stock market story is not all about cryptos, but it may partly be about what investors might see as the cooling down of one sector of the economy.
Cryptos reached a market cap of $830 billion. Not huge compared to the global stock market, but it’s not nothing either. All that growth in say GPU demand had an effect on some stocks which had an effect on other stocks, and so on.
The debate on cryptos needs to move on from whether they’re good or bad, etc., and more towards what are their use cases, where they can help, how certain laws might need to be changed to remove unnecessary barriers and so on.
The current baby boomers in charge, in short, whether in US or China or Europe or wherever, need to innovate in lockstep with their sons and daughters who soon will take charge as the cycle goes on repeating.
It is no good just sitting there in Congress or wherever doing nothing at all but spectacle shows on TV. Get on with the job of making laws fit for this century to update some pretty old ones made in a time fit for horse carriages.
The cool down, however, isn’t just because of China. All that development and research takes some time to pay off. Yet it would be nice of China to join the crypto economy as all that talent in Shenzhen would have been useful towards building all them blockchenized machines.
Not that one can have much trust now in a China based investment as the government there might just shut it down without any consultation. So perhaps it is best to build a new China in the Balkans, especially as far as Europe is concerned which missed the internet wave, but might be in a good position to champion the crypto innovation.