Saturday, September 5, 2015

The Turning Point May Be Soon Upon Us

A Historic Turning Point Is A Watershed Event
Last labor day I wrote the article below. It is relevant to the holiday in that it is about money which is the commodity most of us trade our labor for. Again, I offer it up with some minor updates. Many people work hard for their money and even harder to save a bit of it but they are lulled into complacency when it comes to protecting it. One of the saddest things to witness is when someone who has worked very hard suddenly becomes penniless because an investment turns south. I'm reminded of the story about how many people describe going bankrupt, slowly at first, then quickly at the end. We should remember 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. Timing a market top is difficult, the question I put forth is, are we reaching the turning point?

A turning point can signify a historic or watershed event that is looked back on and commented upon for years, market crashes, the great depression, major economic shifts can fall into this category. In the past I have written about the unpredictability of predictions and how a random black swan crashing through your front window plays havoc with the idea of always and never. Currently America and much of the world has been washed along on a wave of freshly printed money and by the momentum it creates. Auto sales have flourished because of super low interest rates, and housing has also been pushed along by artificially low interest rates that distort what might be called the natural laws of economic order. In a free market the law of supply and demand is left to efficiently allocate capital and in doing so determine true market value. By corrupting this force those in power have temporarily masked reality and the 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 the jobs is poor. Far too common is low pay, none or little in the way of benefits, and many of the jobs today are only part-time. This means 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 under utilized. The cost of carrying and maintaining this under used resource is staggering.

In this environment the burden of caring for a large number of people that need financial help has shifted onto the government, the projections made years ago had not envisioned such numbers. Talk that the budget deficit is rapidly coming down misleads many Americans into thinking that things will be fine, but make no doubt we are still spending far more then we take in. The ugly truth many people choose to ignore is that starting in 2017 entitlements will become the driving force and carry the deficit further into the nosebleed territory.  Any claim that the Obama administration has the budget deficit back under control is a total lie. We are mired in the mist of the greatest government debt bubble in the history of the world. Even future budgets based on the most 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 is always returning from another break, something most Americans would call "a paid vacation." Again they will confront many of the issues they have continually kicked down the road. Making sense of our massive deficit has become far more difficult in these hard times yet cutting spending remains unpopular with many Americans who want more from their government. Central banks have been printing money for years with mixed results and all indications are that sooner or later interest rates will be rising putting even more stress on a struggling economy. 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.

Again this year let us ice this cake of  "difficulties" with a mix of troubles brewing throughout the world. Last year it was the drumbeat of war in Syria, Iraq, Ukraine, and many other hot spots. Currency games, the carry trade, and money rapidly flowing across borders coupled with computer trading that had distorted the markets. Today we can add to the list China collapsing in debt, ISIS and an unstable Middle East, as well as a wave of refugees flowing across Europe fleeing death and destruction. 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; As always 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 post below takes a closer look at the quality of recent growth.


  1. I think it was Ernest Hemingway that your quote about bankruptcy is attributed to. I used to ski with his granddaughter Margot. She changed it to Margeaux when she went into acting. Great skier. Pretty girl. RIP Margeaux

  2. The rise of Trump and the troubles of Hillary and now Boehner are signs.
    As it escalates step by step, the question is 'when does it become obvious?'
    I would guess obvious to most in 2016 and to all in 2018.

  3. Bruce,
    I will not hold my breath on this one even though I agree with your observation. This nonsense has gone on longer than I would have ever believed possible. I have used the last 7 years to eliminate my debt and save. Meanwhile I have watched the speculators prosper. I believe we have reached an inflection point. The unwind is going to be slow and messy. The question remains to be seen if the government and the FED let the normal business cycle take hold. In my mind they have been resisting and failing since 2008.

    1. I'm not holding my breath either. The Fed has been superbly entrepreneurial when it comes to Ponzi schemes or pseudo-economics hocus-pocus that has allowed the can to be kicked down the road, but it can only go on for so long, and we may now be nearing the end.