Monday, September 2, 2013

The Turning Point?

This post is being banged out on Labor Day, it may be appropriate because it is about money. So many people work hard for their money and even harder to save a bit of it but are lulled into complacency when it comes to protecting it. One of the saddest thing to witness is someone who has worked so hard losing all their money when an investment turns south. This reminds me of the story about how many people describe going bankrupt, slowly at first then quickly at the end. This market has far exceeded the upside expectations of many bulls while the economy has languished and in many respects failed to regain all the ground lost since 2007. The question I put forth is, are we reaching the turning point?

In the past I have written about the unpredictability of predictions so I will spare you having to read another one. A random black swan crashing through your front window plays havoc with the idea of always and never. America and much of the world has been washed along on a wave of freshly printed money and the momentum it creates. Housing and auto sales have flourished, maybe to much on super low interest rates. This mask the reality of serious structural problems within the economy. Washington has failed to make the reforms necessary to make America more competitive, problems have been ignored and allowed to fester.

Job creation has been the weakest seen during any recovery on record, not only not enough jobs have been created but the quality of them is poor. The mark is low pay, no or little in the way of benefits, and many are only part-time. Consumers are not in a position to spent the economy forward and out of this mess. Massive numbers of Americans have been unemployed forever and a day or simply dropped out of the work force giving the illusion that the unemployment rate while a bit high has returned to an acceptable level, it has not. The decay and harm being done and the toll this is taking can be seen on city streets throughout America as building and houses sit empty and unable to be sold. The cost of carrying and maintaining this underused resource is staggering.

This leaves the government with the burden of carrying a large number of people that need help, the projections made years ago had not envisioned such numbers. Noise that the budget deficit is rapidly coming down mislead many Americans into thinking that things will be fine but make no doubt we are still spending far more then we take in, cutting more in the near future will be difficult, and last but not least is that in just a few years as entitlement programs kick in things will get really sticky. Even future budgets based on optimistic projections are ugly. Lies and changing rules such as recalculating how the GDP is figured only takes us further down the rabbit hole.

Congress will soon return from summer break, a thing most Americans would call "a paid vacation" to confront many of the budget issues they have continually kicked down the road. Cutting spending is always unpopular with many Americans who want more from their government but has become far more difficult in hard times and when all indications are that interest rates will be rising. Central banks have been printing money for years with mixed results. Figures show the rich have grown richer while the middle and lower class have been smacked in the chin. The "too big to fail" banks have become a symbol of what is wrong with America.

Let us ice this cake of  "difficulties" with a mix of troubles brewing throughout the world and the drumbeat of war in Syria. Currency games, the carry trade, and money rapidly flowing across borders coupled with computer trading has distorted the markets. Forget all the hocus-pocus from the media and clowns about what historically is the best and worst months for the market or how well the market does when a certain team or party wins this or that. This bull market market has gotten long in the tooth and exceeded the average length they normally run, caution would be in order. It might not be a good time to go double or nothing.

Footnote; Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest to you. The posts below look at how the budget will again be front and center in just a few weeks and also take a close look at recent growth.


  1. If the "too big to fail" banks are a symbol of what is wrong with America, then what about the "too big to fail" markets, or the "too big to fail" government, or the "too big to fail" military, or the "too big to fail"media. The answer to these problems is to realize that, like the dinosaurs, all these institutions are too big to survive, and start writing new pages of history instead of copying past mistakes over and over and over....

  2. As long as labor costs are lower in other countries and United States corporations have little incentive to invest their profits in hiring Americans, job growth will be weak no matter what other factors are at work.

    What I advocate in my book, Job Creation Tax Plan, is a new tax rate structure for corporations that will reward those companies that invest their profits in domestic expansion, hiring more Americans year by year, with a lower tax rate than companies that are exporting jobs to other countries, laying off Americans while their profits are increasing. This will have a twofold effect: It will give corporations an incentive to hire in this country, and it will enable growing companies that choose to expand their operations in the United States to grow faster because they will have more after-tax profit to invest in their own growth.

    1. Agreed Hamilton! Good insight and advice.