The Path Towards True Economic Growth

We are in the midst of what some call the “Trump Tirade”. Stocks have been on a substantial rally, and the only question people seem to be asking is “how high can it go?”

Not, “when is it going to revert back?” or “when will people realize that the market is grossly overvalued?” Instead, it’s been a slow, painful, grind of teasing that 20,000 number.

The 20,000 in the DOW might be a nice, round number, but is it really predictive of our growth as a nation?

Since the election, stock implied volatility has decreased by 25%, and implied volatility in bonds has increased 30%, meaning that people see stocks as less risky, and bonds as more risky.

However, a recent article by Bloomberg Markets asserts that the two are bound to become more positively correlated as the market normalizes, which equates their level of risk as essentially the same.

Also, as of right now, the market is overvalued, both in equities and bonds. Bonds have getting more and more expensive for the past 30 years. However, the global aggregate yield is only at 1.5%, which is quite low, historically. So a small move in interest rates as orchestrated by the Feds will drop bond prices significantly.

So how can we grow despite all this economic headwind?

How can we develop beyond increasing the federal debt to unhealthy levels and borrowing from future generations? We have to learn to “do more with less” as Charles Hugh Smith writes.

The US has always valued hard infrastructure (roads, buildings, etc), and the current plan in place works to benefit the owners of these hard assets. However, if we could work on improving our soft infrastructure (human capital and the institutions that create it) that would lead to higher productivity and greater growth in the long run.

We need to focus on cultivating the individual, rather than the institution. College is expensive- and often doesn’t provide the same amount of return in job opportunities for the significant capital risk students put up.

Devoting resources to helping citizens develop skills that enable them to generate substantial amounts of capital, whether it is physical or human, would do a lot to push the country in the direction of “sustainable” growth. Moving resources towards “real-world” skill sets, and accrediting students directly with said skills, will lift the debt burden of many Americans.

How can we be expected to grow as a nation if an exponentially increasing number of our people are crippled by the cost of their education?

Right now, we have “unsustainable” growth. And as 20% of our population moves into the 65 and older age group in the next 10 years, and as we continue adding to the $200 trillion global household and corporate debt number and student loan debt continues its massive increase, we NEED to have sustainable growth.

We need to focus on looking at the market as smart investors, working with the tidal wave that’s coming instead of against it. We need to prepare our citizens will valuable skills that will allow them to compete in the global marketplace. Finally, we need to stop focusing on DOW 20,000, and instead focus on actual growth- increasing productivity and output by  cultivating our skills, rather than relying on the Fed and the government to do it for us.

Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own, and do not represent my employer. Trading has risk. Big risk. Make sure that you can balance your risk/reward, and trade small, and trade often.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s