The year 2019 will be known in the world of investing as the year of the trade war. If there’s one thing we’ve learned, its that when the market can be shook by a single tweet of a bird brain, then we have to focus on the underlying reasons of the sensitivity. Its that sharp pain in the back of your mouth when you drink a glass of cold water or chew on your favorite Trader Joe’s chocolate.
That chocolate in the investor’s world is any news regarding trading with China. People complain every time Trump puts out a tweet, but when there is silence, we grow impatient, bored, and thus, craving for just a piece even though we know it will send sharp pains in our portfolio depending on the adjectives of the Donald’s words.
So how is all of this related to accounting? Well, it goes back all the way to 1929, when the fate of the market was dictated by rookies, teenagers behind the wheel of a Ferrari. Don’t worry, I’m not one of those doomsday stock prognosticating lunatics decked in 1929 chart comparisons. Rather, its what was born from the crash of 1929, the SEC, which was created for the purpose to, “protect investors, promote fairness in the securities markets, to help investors make informed decisions and invest with confidence.”
Here are the five offices, referred to as “the commission,” (how mafia-like), that have been at hard work these past few years thanks to the tightening of global markets:
- The Division of Corporate Finance – so whenever a company like Lukin Coffee (LK) wants some American capital, this division will review their filings. They make sure that their coffee is legit.
- The Division of Enforcement – as the job title shows, they police the market.
- The Division of Trading and Markets – they oversee secondary markets, exchanges, brokers and dealers. I imagine they have all the fun dealing with terrorists laundering money through securities and insurance.
- The Division of Investment Management – they oversee investment advisers and investment companies.
- Division of Economic and Risk Analysis – You gotta love divisions that were born from crisis. In this case, it was the 2009 credit risk crisis. You better believe that the Government is trying to avoid a 1929 disaster by focusing a lot on data and analytics.
So, how does this elite government gang, quite possibly the most unknown and yet most influential force in the world, matter to you, you speck of dust? Its important to note that what matters to this President-elected group should matter to you. Often times, the SEC will create laws and entire divisions after a massive economic crisis has bulldozed through the economy. Other times, they will try to pass laws for preventative measures. These preventive acts for potential scenarios are worth focusing on.
Every now and then, the SEC will pass major Acts to put the market back on the tracks. These Acts are very rare, but I’m speculating, is that the time period between Acts being passed is shrinking. It was first the group of Acts passed in the late 1930s, such as the SEC Act of 1933, 1934, the Investment Company Act of 1940, then it took another 30 years for the Investment Advisors’ Act of 1970, then more recently, another 30 years, the Sarbanes-Oxley Act of 2002. In my opinion, if the market were to face a serious correction, it would be within the next 2-3 years, as we are due for another “Act”. And the way the President and the “Commission” of the SEC are hinting towards something about Foreign or International Trading. Let’s have fun with it:
- The Securities Acts of 1933 and 1934
- The Public Utility Holding Company Act of 1935
- Trust Indenture Act of 1939
- Investment Company Act of 1940
- Investment Advisors’ Act of 1940
- Securities Investor Protection Act of 1970
- Sarbanes-Oxley Act of 2002
- ??? Foreign Investing for Dummies Act of 2022
There’s just too much risk, unknowns, power shifts, and unregulated backdoor transactions in foreign markets and the pressure is building on the US to try and juggle everything with hands tied behind their back. There’s a good psychological analogy about this- about adding one more ball to a juggler. Soon, there will be another country, another scandal, one more war, one more tariff, whatever it is, then all the balls will drop. Just something to keep in the back of your mind my fellow investors, the US is the boss of the Global Market, but when you’re on top, you’re also the top target.