The New Gilded Age; The Post-2008 Economy, Part 4

The news cycle over the past two weeks can be likened to watching paint dry or glaciers melt. 2013 was the year of congress, the sequester, debt ceiling and shutdowns; 2014 is dominated by sports (Donald Stirling, Ray Rice..stuff like that), police and race conflicts, Russia and the Middle East.

The good news is the slow news cycle bodes well for stocks because in the absence of economic catastrophe, stocks will do what they have normally done historically which is go up all the time.

The best investment strategy right now (and for many, many years to come) is to take advantage of the bigger is better market environment and go long large cap tech, such as Facebook, Google and or the S&P 500, while hedging it with a combination of emerging market short positions and or small cap shorts. Or you can short ALL markets excluding the US while going long the S&P 500. Since 2014, in the wake of the fear of recession in Europe and elsewhere, we’re seeing a huge flight to safety. Fund managers are taking money out of the smallest, weakest stuff and pouring into the safest and highest quality stocks, indexes and sectors such as the S&P 500, healthcare, biotechnology, and large cap technology such as Microsoft, Google and Apple. Again, this trend will continue of the big getting bigger and companies with huge growth and zero competition being rewarded with enormous but sustainable valuations. Such high-growth companies include Facebook, Snapchat, Uber, Tesla, Dropbox, Pinterest, Tinder, and Air B&B.

The left is hoping, to no avail, that Karl Marx’s prophecy will come true, and capitalism will self-destruct. No such luck as capitalism continues to thrive. The elite keep getting richer, and high-IQ people are still be showered in wealth and adoration for their contributions to society.

We’re a new gilded age like the roaring 20’s, but it won’t end in a crash, even as profits & earnings and wealth inequality keep making new highs. There’s too much money sloshing around in the global economy, too much fear by the masses, and the US is still the best neighborhood in an unsafe world, so institutions will keep buying our debt and stocks as there are no good alternatives. Compare that to the 20’s, late 80’s, and late 90’s when you had an opposite situation of rapidly rising interest rates, public euphoria, too many overpaid jobs, and high valuations.

I was taking to someone a couple days ago and he asked who would be the new superpower if America falters. I replied that if America fails, thanks to globalization, there will be no new superpower. We (the world) will all go down together because nations are so interdependent. It’s not like China will reign supreme, because it’s economically dependent on America to buy its exports. He also asked what would happen if America is unable to grow fast enough; would bondholders lose faith and dump American treasuries, resulting in inflation? I explained that Japan has much poorer economic growth than America but actually more deflation. If America has economic troubles, it will create a massive flight to safety and send yields much lower, not higher. That’ the power of reserve currency status and why the Goldilocks economy of slow, steady growth and tame inflation is the best economic environment.

Not only are we in a gilded age, but we’re in a smartist era and intellectual Renaissance. In the past eight years alone more significant discoveries have been made in high-energy physics than in the previous twenty years combined. The same for mathematics, finance, economics, and pretty much all intellectual subjects. Thanks to the world wide web, the Flynn Effect, and rigorous public education, millennials are smarter and better informed than any previous generation, which is why we’re seeing the rise of pragmatism (realpolitik), internet libertarianism, and utilitarianism – the fastest growing nascent political movements of recent history. As more evidence of the smartist era, a recent Reddit ‘Ask Me Anything’ (AMA) from an astronomer got over 1000 comments and even more up-votes, on par with famous athletes and celebrities. She’s not even a famous astronomer, but just some random university student. That’s just the tip of the iceberg of how prized intellectualism is in America today. AMA’s from physicists, wonks, tech entrepreneurs and other smart people have also gotten thousands of comments predominantly from a 20-30 year-old demographic. In the 60’s, people of that age may have had more street smarts – but in the post-2008 economic, wealth, and intellectualism boom – street smarts have ceded to book smarts in some sort of Revenge of the Nerds in overdrive because intellectual capital and cognitive capacity has become the new currency for upward mobility, so those who have more of it are superior people worthy of our admiration and attention.

Outside of athletic ability, welfare liberals are in constant denial about individual exceptionalism. They dismiss IQ as being unimportant or imprecise, or that the stock market is rigged and irrational in such manner that no one can beat it without insider trading or some other unfair advantage. According to liberal logic, someone may appear smarter not because they have more original cognitive capacity, but due to some unfair environmental advantage that only a big, wasteful social program can fix. In an effort to diminish the importance of IQ, libs in the useless field of social psychology want to believe everyone is irrational and that smart people are easily fooled. See, smart people aren’t so smart after all because they fall for the conjunction fallacy!

Some on the left say America is in decline or losing its influence. Not true, we’re pulling ahead of the rest of the world. Silicon Valley is not only the center of the technology universe, but America’s intellectual institutions are the envy of foreigners and are inundated with applications from the best and the brightest from all over the world. So while the left whines about America having too much inequality and not enough jobs, rich and smart foreigners – whether they are going to Caltech or MIT, working at Google, or buying up expensive real estate – can’t get enough of America.