Macro micro trader

I have been thinking of writing this one for a very long time now and have been contemplating my thoughts around it.

Every economy, especially the ones that rise to the top of the ladder, goes through a long term boom-bust cycle. Such cycles last for hundreds of years before another one emerges to challenge the status quo.

This graphical representation from Virtual Capitalist explains it succinctly:

As is visible in the graph, It was India for the first 1,000 years, closely followed by China. Then China for the next 800 years, closely followed by India. 1600-1700CE was the time of transition as the world started seeing more industrialization, led by the UK and other countries in the Europe. While UK did not lead the world economically in those 1700-1900s, it definitely ruled the world for those 200 odd years. That was also the time when United States started taking over in economic and geo-political terms. By the end of World War 2, U.S. virtually established itself as the power to reckon with and continues to rule even now.

Now given the global order and geo-political situations we are seeing in the world, have we started to see the cracks in the power to be already? Is U.S. losing its sheen to lead the world economically, politically and beyond? If one reads up the history of the world, it is clear that the transition of one world power to the another happens in a gradual manner wherein the incumbent makes many mistakes, domestically as well as internationally, whereas another rising power fills the vacuum left behind by the former. While it is still early days whether China is the next to replace the U.S. for the next few decades, for now it does look like one. At least economically it does.

As mentioned above, the fall of the exiting superpower is usually the combination of many mistakes, globally as well as domestically. That makes one wonder if all those wars that the U.S. participated, either by physically being present by way of troops or by way of sending arms and ammunitions (Ukraine, Israel, Syria), hasn’t it caused more damage than ever?

The U.S. govt has spent more than $6 trillion in financial aid and wars since 2001 as of 2022 and is only rising due to ongoing conflicts in Ukraine and Israel. These financial aides to various foreign countries has only been resulting into increased budget deficit for the U.S., resulting into frequent debt ceiling hits and govt shutdowns. Foreign policy, combined with domestic political mishaps makes it a combination of big political mistakes that makes it harder for the U.S. to be able to assert its power onto the world.

There has been increased outrage amongst the general public due to rising budge deficit and military aides. If that wasn’t enough, recent rise in illegal immigration at the southern border, has aggravated angst among the people.

Illegal immigration:

When there is already rising inequality in the country, these political mistakes (at domestic and international level), coupled with heightened inflationary period, only gives rise to frustration and anger among the general public, which in turn results into rising criminal cases, such as thefts and robberies.

Rising inequality:

Loss of retail revenue due to theft:

Globally, heightened period of inflation has resulted into many political regime changes (Recent examples) and there are ample examples of countries failing due to rising inflation (Zimbabwe, Venezuela, Argentina, Pakistan, Sri Lanka). While, inflation seems to have been tamed off late, it wouldn’t take too much for inflation to rise back again, if govt and Fed officials get relaxed.

Now, sharing below 100-year log chart of S&P 500 conclude this with tradable insights. What we see here, is the fact that SPX touched exactly upper end of this 100-year long channel resistance is a sign that there is more to this bear market that we have seen so far. I don’t know how low it would go and I wouldn’t wager my money on this expectation, but I would always keep my eyes on this chart along with what I have been analysing on a daily basis.

Tweets by trojan_manoj2

This week, I wouldn’t be giving any detailed technical write up due to time constraints, but here’s the weekly video on YouTube on Fundamentell’s YT channel. Feel free to like, comment and share: