The world’s most valuable retailer, Alibaba, carries no stock.
The world’s largest taxi company, Uber, owns no cars.
The world’s most popular media conglomerate, Facebook, creates no content.
The world’s largest accommodation provider, Airbnb, owns no property.
The creation of intangible value through internet assets has been a popular trend in modern history. In the past this has led to disastrous vicious-cycles, (similar to positive-feedback-loops), that can cause an economic system to descend into chaos.
Speculation on the value of internet assets was what caused the .com bubble of 2000 to inflate - burst. The bubble that popped in 2000 was an asset price bubble that resulted from the explosive stock market growth as the internet emerged. Another period of rapid tech development is almost upon us; in the future it will be referred to as the Machine Learning, AI, and/or Quantum Computing revolution.
Having said that there's the possibility of enormous technological growth in the near future, I'm not saying it will happen tomorrow. The United States could very well end up in another recession if the economy doesn't react well to the unprecedented treatment it's received from the Federal Reserve, ZIRP, etc.
Irrespective of the domestic/global economic landscape, technological progress is inevitable. As time passes the electronics humans use worldwide will only get smarter, faster, and more advanced.
Technological progress sees no regression.
(unless you work at Apple... Iphone 6s > Iphone 7)
Money stock is a measure of the supply of money in a particular level of the economy.
M1 is banknotes/Coins in circulation + travelers checks + demand deposits
M2 is M1 + savings deposits + money market deposits
Their respective velocities measure how often money (M1/M2) is spent in a given time.
Hypothetical example: 9/20: John bought a coffee from Jill for $5, then Jill bought shoes from Andrew (with the same $5), then Andrew bought fruit from Paul (with the same $5).
9/20 M = $5 9/20 Velocity of M = 3
Post-recession-America has seen an increase in M1/M2 along with a decrease in the velocity of M1/M2.
It isn't a coincidence that the money supply started behaving abnormally after the FED dropped the federal funds rate close to zero.
When the FED is making unprecedented policy decisions; the people should expect unprecedented results.
ETF - Exchange Traded Fund - "A marketable security that tracks an index, commodity, bonds, or a basket of assets like an index fund."
In the last decade, ETF's have grown in popularity more than any other investment.
The graph below shows their explosive growth.
Q2 2006 Value: $17,565,000,000,000 - Nearly 18 trillion USD$ in ETFs
10 years later +$384,120,000,000,000 (Yearly growth rate - 219%)
Q2 2016 Value: $401,685,000,000 - Nearly 402 trillion USD$ in ETFs
An issue that could be amplified by ETFs larger market presence is that they can fundamentally fail.
Flash Crash's 2010 & 2015
Flash Crash Wiki
In the "Flash Crashes" of 2010 and 2015, ETFs became unhinged from their underlying "value". Both instances were partially caused by HFT (High Frequency Trading).
"Bids on dozens of ETFs, and other stocks fell as low as a penny a share" -WSJ
(^talking about 2015)
In Complex Adaptive System Theory, a Cascading Failure is when the failure of a part causes the failure of successive parts. (Domino Effect)
Both flash crashes were cascading failures in financial markets. Regulatory measures taken to prevent another ETF issue are insufficient.
On Thursday (9/8) the Federal Reserve released their plan for a financial crisis. They will institute a "countercyclical-capital-buffer"; simply put, they plan to increase reserve requirements.
Increased reserves are likely to reduce the number of bank insolvencies, but they also reduce the amount of money banks can lend. This policy decision could hurt consumers/business owners who have become reliant on debt to function.
The United States is more reliant on debt than at any point in history.
LINK TO SOURCE ARTICLE
Asset Price Bubble
Federal Reserve Bubble
Treasury Bonds and LIBOR
Rucker, Patrick. "Federal Reserve Says It May Ask Banks for Extra Capital in a Crisis." Reuters. Ed. Leslie Adler. Thomson Reuters, 08 Sept. 2016. Web. 09 Sept. 2016.
The United States is in an asset price bubble.
Asset Price Bubble Checklist
1. Rapid Acceleration of Asset Prices
2. Overheated Economic Activity
3. An Uncontrolled Money Supply
4. Uncontrolled Credit Expansion
The United States meets all the criteria, being flagrant offenders of 3 and 4.
The economic situation in the US mirrors the Japanese Asset Price Bubble (wiki link) to an alarming extent. Years before the economic decline started, the Japanese government implemented aggressive fiscal policy (increased public investment) and expansionary monetary policy (dropped their interest rate).
The US has the same fiscal/monetary policy stances.
From 1989 to 1994 the NIKKEI 225 Index grew from $10000 to $38916 (231%). Economic deflation started draining the economy in 1991 and lead Japan into economic struggles for nearly 20 years (1991-2010). The first ten are commonly known as the lost decade, the full time period known as the lost score.
The S&P 500 keeps setting new all-time records, the price is the highest it has ever been in history.
All Time High - $2175 - 7/22/2016
Why are interest rates still close to 0%?
Is not responsible for your investments.