We are in the midst of a classic capitulation with the last hour of trading Monday going into a tailspin as selling triggered more selling. In the news, there were reports of the fall of an Iraqi town, and medical news resulted in fears of Ebola rising. None of this news is economic, yet they are overwhelming the rational reasons for owning stocks. This is hysteria at its best, the fear is real, and very few people are immune. A couple days ago, I received an email from my 17- year old son. He was on a flight from the Dominican Republic which was delayed while a family was removed from the aircraft. Passengers were whispering that it could be a new Ebola case.
As a parent, his email scared the hell out of me. At that moment, I did not care where the market landed. As an investor, I have seen this movie before. I know that at some point, stocks will find a bottom which make a great entry point. However, trying to find a bottom in fear and panic is a tall task, preferably made easier by using the so-called fear index, VIX, a spot where the market has made a stand before. I am not sure when, but it will require great earnings releases, days without more Ebola patients being discovered, and flights not getting delayed out of fears that an entire family may have the virus.
Why are Americans So Afraid?
From the beginning of time, mankind has coexisted with war, disease, and famine. There is also fear in America, and in some respects, it seems oddly misplaced. From 1918 to 1922, Typhus and the Spanish Flu killed 53 million people around the world. Each year, TB, Cholera, Malaria, and AIDS kill millions as well. What is surprising is that last week, a new $40 million amusement park opened in a Damascus suburb, while militants control the suburbs on the other side of Syria’s capital. Then, over the weekend, I saw a photo of a shopping mall in Turkey that was 45 minutes from Kobane. One would think it would be millions of miles from the siege, as massacres serve as an exclamation point from ISIS.
Our government debt, student loan debt, and pension fund liabilities are ticking time bombs that need to be addressed. However, the only focuses in the news are about the terrorists and the Ebola scare. It is understandable to be concerned, however not to the point where it affects our day-to-day lives and makes the economy worrisome. I have little faith in the administration, but I think our medical community will meet the challenge. It would be easier to stop in-bound passengers from hard-hit nations, but it is not politically correct. Though I have faith in the military, I wonder about their will to win.
America for Sale
Now, the word is out that the administration might oppose the purchase of the Waldorf Astoria New York Hotel for security reasons; it is where President Obama stays on his New York visits. The hotel is near the United Nations. A week ago, it was all about the Chinese being suckers, now it is a national security issue. If government officials cannot find a different hotel, perhaps it is an issue. Still, how many great hotels in NYC are not owned by foreigners? In 1989, Mitsubishi purchased the Rockefeller Center for $868 million in a deal many found as the exclamation point on America’s demise from the world’s top economy.
Certainly, Japan was riding high back in those days while in the midst of an economic run. The country saw its GDP soar from just over $1 trillion annually in the early 1980s, and even up to $5 trillion by 1999. Unfortunately, the Japanese economy would hit a brick wall a few years later.
In the meantime, China has surpassed Japan and is nipping at America’s heels for position as the number one economy in the world. In addition to owning more than $1.0 trillion in US government bonds, China has been on an acquisitions binge buying up American real estate from small parcels in Detroit to homes in California. However, the biggest prize came yesterday. The Anbang Insurance Group of China announced the purchase of the Waldorf Astoria New York Hotel; they paid $1.9 billion for one of the grandest properties in the US. China is sending the message that they will soon be ‘top dog’ one day.
Moreover, I think the news is disappointing for America and do not take solace in the notion that China is overpaying for the luxury property. As discussed in this commentary, there are greater items to be concerned about and they all have one thing in common: we do not have the leadership to stop them from becoming a worst-case scenario.