As a life-long Texan who recently endured uncommon hazardous road conditions due to snow and ice, let me share with you some sage advice I've gained about the rules of the road in winter:
Don’t panic, don’t overcorrect.
Seems rather simple, right, but the reality is that while most will hear or have heard those words, too many do not apply them when in the heat of the moment, often resulting in peril.
To that end, let’s recognize that good advice in one situation can often be applied in others.
Much like when driving on icy roads, don’t panic and don’t overcorrect is also a good rule of thumb when hazardous economic conditions are afoot.
Slamming on the brakes or excessive acceleration are the exact opposite of what should be applied to the markets.
Yet panic selling, FOMO buying, and pulling out all the stops on stimulus seems to be what is called for when the reality it is over-reaction.
This leads us to an uncomfortable truth about the last year (pre-pandemic): we were due for a market correction.
The economy was booming, but there were several IPO’s and bubbles that were getting ready to pop (looking at you, rental prices in San Francisco, New York, Chicago, etc), but thanks to policies put forth by the Trump administration, as the rest of the world was beginning to see an economic pullback, the U.S. had was in "extra innings" of the ongoing bull market.
Growing up, we all learned that what goes up, must come down.
The same can be said from time-to-time about the market.
In a free-market system, various parts of the market must be free to go up, but it also needs to be free to go down. That part is never fun (at least for those within the "bearish" sectors), but it’s the truth — and it’s necessary.
For there to be winners, there must be losers.
Politicians, however, really don’t like that — especially if they are the ones in power.
No Democrat or Republican wants to be at the helm during a correction, instead, they want to take the credit on the ride up.
These are our enablers, our drug dealers so to speak, who want us to buy, buy, buy, and not to worry about what keeping those positive "highs" and never "lows" and stimulus has become their drug of choice.
The U.S. economy is dangerously close to becoming addicted to a stimulus (if we are not there already).
In the same way that drugs, alcohol, or other dependencies eventually yield their devastating impact, the cost of stimulus addiction could be catastrophic.
The American national debt is now approaching $30 trillion; visualized differently, to be paid off, every single American adult would have to pay nearly $225,000 to buy us back out.
While economists argue (don’t they always?) on the degree of inflation, they generally agree that it is coming.
Your dollar will be worthless, your cost of goods will be increased, your rent, your mortgage, your car payments, gasoline, even milk, and eggs all will all go up in cost.
Inflation reduces buying power and can have a dire impact on jobs, effectively yielding less economic access for the average American.
As if this trajectory weren’t bad enough, it is coming on the heels of the most disturbing engagement by the state displayed in their lockdowns this past year. In plain terms, they manipulated the markets, massively.
Not stocks, per se, but entire industries were shut down while others weren’t.
In a seemingly intentional fashion, small businesses were targeted while large corporations like Amazon, Target, and Walmart were able to gain market share and reach record profits.
This will have a detrimental impact on the long-term economy, and when economic growth is slowed due to a market correction and bad economic policy at the same time as inflation, that’s when we see stagflation, and that’s when things get really bad.
Going back to the snow theme from earlier, America only has so much gasoline saved up to run the generators, but our elected leaders seem to want to use it all now rather than saving stimulus for the long nights and the possible cold days ahead. “We can’t let the economy go down, not during a pandemic!” is the sentiment, but never letting the economy correct is not a long-term option, there is always a reason why now isn’t a good time.
Corrections occur to adjust for extenuating circumstances; we are living in those circumstances. Compounding the recklessness would be passing the infrastructure plan, being discussed by Buttigieg and Biden as it is ridiculously timed.
We need to let the economy dip and stabilize on its own before unveiling multi-trillion-dollar building projects.
This leads us back to the core of the problem: the politician; always striving for re-election, regardless of the consequences.
The Biden administration is looking to spend it to an early grave trying, to bump their numbers as we approach the 2022 senatorial and congressional races.
I understand that politicians on either side of the aisle will often do whatever they can to gain an edge, but America is suffering for it.
The interest on the federal debt in 2020 was 378 billion dollars meaning roughly 8% of spending was used simply to cover the interest on our spending!
America enjoys low-interest rates because the world relies on the dollar, and essentially, they know we’re good for it. Mostly.
Under the Obama administration, however, we saw our credit rating reduced and with our reckless spending, we’re likely headed there again.
This abuse will ruin our credibility, and with that, our credit. We do not want to create an opportunity for a country like China to step in and utilize their currency as the global standard.
In the end, the way out of addiction is usually detox or death — let’s hope America does not go the latter route.
We must be however independent again, free of liability and insurmountable debt.
We must allow the free market to be free, and we must save stimulus for when it is most desperately needed, not when convenient for buying elections and voters with "free" money.
Seth Denson is a Business & Market Analyst, Author and Entrepreneur. He co-founded one of the nation's most successful consulting firms and authored the best-selling book, "The Cure: A Blueprint for Solving America's Healthcare Crisis," which takes a deep dive into the business structure of our U.S. health care system and how we can reform it while maintaining our free market. As a regular on-camera contributor, Seth has garnered a national presence discussing a range of topics including business and economics, politics, faith and fatherhood. Originally from West Texas but with international business experience, Seth's "no-bull" approach blends metropolitan thinking with good old-fashioned Texas straight talk. Read Seth Denson's Reports — More Here.
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