Stock Market Down. How is This a Good Thing?

Been watching the stock market this morning. It's no shock to anyone who has not been under a rock the last week that it's down... way, way, WAY down! The reason is obvious... China's corona virus is spreading across the globe, and a lot of our economy is tied to China.

We're tied to China for a couple of reasons. One, obviously, is their wealth in rare earth minerals needed to create the electronic marvels we all enjoy. Semiconductors, especially specialized semiconductors like solar cells and many types of sensors, require these rare earth minerals. China has the bulk of the planetary deposits of these we know of. While some do exist elsewhere, the infrastructure has not been developed to compete with China. After all, China was the first to recognize the need and develop their infrastructure, and Chinese goods are cheap... why bother?

I'll tell you why: a fool places all their eggs in a single basket. I remember a time back in the latter half of last century when one of the two major ceramics manufacturing facilities in China burned down. Semiconductor costs shot through the roof! Many were completely unavailable for several months at any price. One would think that would have been a wake-up call to other countries to start diversifying into semiconductor technology, but nothing came of it. The plant was rebuilt and things went back to normal. In short, the world gathered up as many eggs as they could salvage, put them right back into the same single basket, and went on their merry way.

Now it seems we may have tripped and spilled all our eggs again, over something called the "corona virus."

This got me thinking... the stock market is dropping like a rock on Jupiter because the investors know their ability to make the goods is greatly dependent on China, and they fear China may become unable to supply the global needs. This didn't happen back when that ceramics plant burned down; it was a blip in the overall market, primarily because we weren't at that time quite so dependent on Chinese semiconductors. But something else has changed: the US has dropped many of the more heinous regulations and lowered the excessive taxation here, which is what caused many businesses to relocate and others to depend on Chinese technology.

So what is now preventing companies in the West from getting into semiconductor production?

Only one thing so far as I can see: rare earth minerals. China has been playing a little dirty with theirs... they do not export rare earths in any large amount, instead choosing to export the completed semiconductors. This has worked well for them, as it forced others to buy not just the rare earths from China, but the technology derived from them as well. One can buy Chinese solar cells from China cheaply, for instance, and solar-powered lighting using those cells even more so, but it's about like pulling hens' teeth to try to buy the materials from China that are needed to make the solar cells. I can buy a retail box of solar-powered walkway lights for the same price I can buy surplus solar cells (the exact ones used in the lights)! And forget the idea of setting up even a small manufacturing facility... the raw materials cost literally a fortune.

And remember, I am in the industry. I buy this stuff all the time. My costs are much lower than what most will pay, especially on raw materials and components.

But what would happen if someone decided to start mining for these rare earths somewhere besides China? If mining became globalized instead of concentrated, China would lose a large part of their inherent advantage in the semiconductor industry and have to start to compete honestly in the marketplace.

Now, I'll admit that it will take a lot of work to expand the infrastructure beyond China. But a dropping stock market is not bad news for everyone... during the Great Depression, quite a few made fortunes and started economic dynasties that exist still today. While the vast majority of people lived in squalor, those with the insight, tenacity, and perseverance prospered. We still have people like that, and I am thinking perhaps this dropping stock market could wind up being a good thing in the long run.

At the very least, China now has reason to negotiate with the USA. Their economy has become a house of cards, and they're sitting across the table from someone known to blow down card houses.

The worst I see happening is that prices for semiconductors will skyrocket. As that happens, more people will move to fill that need as materials allow. As material prices skyrocket as well, more people will move to create infrastructure to mine these elements. That additional supply will stabilize the market at a new level, admittedly much lower than before, but not rock bottom either. And the market will return to growth... a sudden jump, but then more of the slow, steady growth we have come to expect. This time, we won't have all of our eggs in one basket, either.

I said in 2016 that a Trump Presidency would be the best thing to ever happen to the US and the most painful thing to happen to the US at the same time. Looks like I may have been right. If one gets a splinter in one's finger, one has a choice when to lance it out. Doing so hurts, and the longer the splinter has been there, the worse it hurts. But if one never lances it out, that little splinter can set up infections that lead to blood poisoning and gangrene... and it is possible to die from it (although that would be quite unusual to let a splinter go long enough for that to happen)! China's business practices have been a splinter in the world economy for quite a long time, and now the infection is getting serious... it has to be lanced. It's gonna hurt like crazy, but that's the only way it can ever heal.

Would like to hear thoughts from others here on this possibility. Remember, this is NOT the Mud Pit, so everyone please play nice.

TheRedneck

The Company that I work for is bringing some capability back in house to make components that we normally buy from China because of this.

a reply to: JIMC5499

Can I ask what kind of components? Nothing specific, just like, metal alloys or semiconductors or something else?

That sounds exactly like what I am talking about happening, and I consider it a good thing. Thanks for the update!

TheRedneck

I think it is a good thing as it may be the catalyst needed to get companies to bring some manufacturing back to the US and also maybe some policy makers will put some things in place to ensure our companies don't have incentives to leave the US.

The bond market is rallying (bonds tend to move in opposite of equities) and is helping push mortgage rates and other interest rates lower.

a reply to: TheRedneck

*adjusts tinfoil hat*

I see it differently.

I see it as evidence of a one-world government, globalization of economy, without the admission from our political leadership.

Regardless of where plants are or products made, we are all joined at the hip.

It would take an extreme isolationist movement to break away from the hidden one-world focus and ideology now, yet. . .

It's a symbiotic relationship that if broken, would devastate us as a nation.

a reply to: TheRedneck



I'm not sure I'm going to be sharing your visions of any sort of silver lining on this one. We're somewhere between screwed and boned presently as far as I can tell.

It's the exact same situation with pharmaceuticals and med supplies. 80-95% dependence on China.

a reply to: TheRedneck



I agree....I think we must mfg. all items that will keep us independent and self-reliant. I know it's a stretch to get there, just saying we should try.

It is a good thing for the super rich that can afford to buy the stocks in solid companies when this bottoms out.

Warren Buffett already said it.

I don't know what it is, but I'm starting to think something fishy is going on. Blaming a virus for a 5000 point drop in the stock market in such a short time is odd to me. When this virus thing is over we'll see if it zooms back up to the near 30,000 mark. Be good to see the Hong Kong protests back on the news as well. While were told it's bad I'm wondering if it isn't some grand distraction.

a reply to: TheRedneck

Good post and I agree about diversifying mining and manufacturing. We could also do with a healthy transition away from disposable tech with product lifecycles measured in months rather than years.

My sole phone is almost five years old. When I see folks my age chasing the new Apple or Android phone like lemmings, I shake my head in disgust. We have encouraged wasteful consumption for so long, I'm not sure most people could live without constantly replacing their goofy little status gadgets on a yearly basis.

Obviously, a significant chunk of our economy is based on separating the dumb from their money on an annual basis, but we really need to encourage a little thriftiness along with the diversified mining/manufacturing you suggest in your post.

None of this stuff grows on trees and China is a bad bet to hold this kind of monopoly on world trade.

I bought several stocks in 2009 at fire-sale prices. Some soared, others (like G.M.), folded.

If I was a powerful manipulator, I'd have stocks tank again, and then buy again.

Hey! That's what happening. Maybe there are some "powerful manipulators" who think like me?

a reply to: DBCowboy

There's always going to be dependence on other nations to some extent. That's actually the opposite of globalism. Globalism would be if there were only one nation and therefore no dependence.

I will point out another silver lining, since you brought it up... why would anyone want globalism in the face of a viral outbreak in China that can at least be somewhat contained in a country? If we lived under globalism, there would be no way to contain it! It would be like the US trying to contain something in Indiana... no way to do it. We have free movement between states.

At least we do not have free movement globally... and this is a very good reason why we shouldn't.

TheRedneck

a reply to: IAMTAT

I wasn't aware of the dependence on medical supplies... thanks!

TheRedneck

They are being manipulated but I got out 9 days ago and missed the mess. I'm not really worried things will change next week. People want to make money.

I hope China tanks and every traitor who moved their business to China tanks with it.

Because that's what they are. Over the past 50 years automation has caused worker productivity to dramatically increase, but our wages have not. Instead of employing American citizens at a fair wage and making more money than before, they chose to outsource to China and exploit slaves oppressed under a Communist regime so they could increase their profit margins to the utmost extreme and damn the rest of us.

Communist states are a moral and philosophical enemy of Democratic Republics. There is no common ground between us and in fact China is also an economic and military threat as well. They use spies to steal and copy our technology, they manipulate their currency and engage in unfair trade practices. Their military illegally invaded Tibet, they have illegally seized multiple Pacific islands, they fire on our Navy and our Air Force (with multiple examples - just recently they fired a laser at one of our planes). This is a country whose government has exterminated almost 100 million of it's own people to seize power and continues to imprison, beat, subjugate, and murder anyone who dares to protest against it.

But our government turns a blind eye to all of it because the business owners who lobby Congress and pay big $ in campaign donations are getting rich from the Communist evil too.

I shed no tears on this day. I hope the tanking continues.

It's sad that it took an act of God to stop the evil in our government. The founding fathers must be ashamed of us all.

originally posted by: TheRedneck
a reply to: DBCowboy

There's always going to be dependence on other nations to some extent. That's actually the opposite of globalism. Globalism would be if there were only one nation and therefore no dependence.

I will point out another silver lining, since you brought it up... why would anyone want globalism in the face of a viral outbreak in China that can at least be somewhat contained in a country? If we lived under globalism, there would be no way to contain it! It would be like the US trying to contain something in Indiana... no way to do it. We have free movement between states.

At least we do not have free movement globally... and this is a very good reason why we shouldn't.

TheRedneck

Is it contained?

a reply to: TheRedneck

From what I understand, we rely on them for a lot of generic drugs and ingredients. We have been moving a lot of primary drug manufacturing out of China for a couple of years now due to efficacy issues. Their drugs were literally coming back from testing with fractional amounts of active ingredients. It's still a big problem, but it is much larger in places like Canada (and by extension, with bargain conscious US consumers who buy their drugs in Canada) than it is here now. Unfortunately, we are still too dependent on China for sterile supplies, gloves, and similar supplies, which is also a huge problem.

In case of emergency, the US does maintain enough drugs and supplies in our strategic reserve to carry us through multiple simultaneous crises, so there is that.