“China, Europe, and the USA” vs “the Laws of Economics”

By: Jonathan M. Lamb. Jonathan M. Lamb is an Economist, Consultant, and Entrepreneur that resides in the Research Triangle of North Carolina.

With the United States quantitative easing flooding the market for the better part of this decade, Europe is now soaking the markets with a $1.2 Trillion monetary easing spree of their own starting this month. Not to be out done, China rose to the challenge and surprised the world with a 0.25% rate cute at the start of the month. We are already seeing negatives rates in Switzerland, Sweden, and Denmark, meaning that they are PAYING to have people hold their money!

Back here across the pond in the Land of the Free and the Home of the Brave, publicly traded companies are buying back their own stock at records levels. To get a prospective, over $450 Billion in publicly traded stock buy backs were made last year, which represents over 8% of the ENTIRE market cap of the NASDAQ. On top of that Private Equity has bought ALL of the private large and middle market companies that are available to buy. So what does all this mean, and why do we care? Well we have cheap money being forced into markets, and less things of value we can spend it on.

Our current market challenges go back to basic economics. Supply and demand intersect and we reach market equilibrium. Supply and demand is out of whack. All this cheap money increases demand, and lack of supply drives up prices. This rally is not real; there are not actual fundamentals behind the rally. This is like a camel trying to go through the eye of a needle. It does not work.

I unfortunately am a Chicago Cubs baseball fan, so I understand disappointment. For my fellow baseball fans think of what is happening right now in the market as a rundown…the market is like a baserunner down by 1 run at the bottom of the 9th inning with two outs getting trapped between home plate and third base. Money is being thrown back and forth, and the market is trapped between the catcher and 3rd baseman trying to avoid the tag. As you know a baserunner can only evade so long before the defense lays down the tag and the game is over.

I am not a black swan Bear that thinks the sky is falling. I am a realist and an optimist, and
I love to cheer for the underdog. I know that the runner can always slide under the catcher’s legs and avoid the tag. In this game of economics even if we can score here in the bottom of the 9th inning and tie the game, we have to keep playing. Our markets are not like soccer, we can’t end in a tie. But who will be the winner?….the Bulls or the Bears?…I can tell you this much, the loser will not be the laws of economics… eventually the laws of supply and demand will emerge victoriously.