I've always considered myself a glass-half-full kind of guy.
Tomorrow will be better than today; opportunities will
Sometimes, though, I get down … and I've been a little down
lately. I say that because I see more economic fallacies passed
off (and accepted) as profound, and more misbehavior tolerated -
if not encouraged - than I have seen in my investing
Though I don't believe an apocalypse is imminent, there are a
few extenuating factors that could lead to one if they continue
along the same ominous trajectory.
1. A Reckless Federal Reserve.
No organization has more impact on financial markets than the
Federal Reserve. And at no time has the Fed had more impact than
it has today.
Through endless money pumping (given the concealing euphemism
"quantitative easing") at $85 billion per month indefinitely, the
Fed has filled the economy with trillions of dollars of new
Much of that money has found its way into the asset markets:
bond markets are at all-time highs (the average yield of
is below 5% for the first time ever), interest rates are at
all-time lows, the collectibles market is booming (many
cable-television outlets have multiple shows dedicated to
collecting), and farmland prices are soaring.
The Fed's money has, of course, infiltrated the stock market.
Stocks, too, are at an all-time.
This is reason for concern, because the stock market is the
only legitimate game in town for
income and yield
investors. Unfortunately, it has also become an increasingly
dangerous game. Thanks to the Fed's promiscuous monetary ways,
stock values are today driven as much by anticipating the Fed's
monetary policy as they are by company fundamentals, thus making
the stock market a
2. Piling Up of Debt.
The Fed and the Treasury Department have a unique symbiotic
relationship. The Fed is able to inject new money into the
economy by purchasing the Treasury Department's debt. In turn,
the Fed's demand for this debt lowers the borrowing cost for the
At the same time (and this goes under-reported), the Fed
monetizes the Treasury's debt. I say that because at the end of
the year the Fed remits all its profits (which include interest
payments on Treasury debt) to the Treasury Department, thus
further lowering the Treasury's borrowing cost.
This incestuous alliance between Fed and Treasury undermines
the economy in a more inconspicuous, more sinister way.
High levels of government debt weaken individual property
rights, because debt must be paid from productive sources - your
and my property and labor. Government debt also retards capital
accumulation (the source of wealth creation), because government
debt is spent mostly on current consumption. What is spent
can't be invested.
In short, the debt is a big deal, and a potentially dangerous
one to the well-being of our economy.
3. Belief in the "Free Lunch."
The height of naivety is to believe in the free lunch - something
for nothing. Naivety was exemplified by the believers in
Obamacare, who thought this bureaucratic monstrosity would lead
to lower cost, better service and universal coverage.
It didn't take long to discover the opposite is true.
Stories abound of double-digit premium increases for
individual health policy holders (around 19 million).
According to management consulting firm Oliver Wyman, single
adults age 21 to 29 earning 300% to 400% of the federal poverty
level can expect a 46% premium increase. Meanwhile, analysis by
WellPoint projects small-group premiums will increase 13% to 23%
Obamacare also hits larger employers, many of whom are subject
to a tax penalty if the healthcare policies they provide are
insufficiently generous. Employers are reacting to the law's
mandates through rational actions - by lowering wages and by
reducing hours, because the penalty doesn't apply to employees
who work fewer than 30 hours per week.
I can't say I was surprised to read that U-6 employment, which
includes people employed part time for economic reasons, ticked
up for the first time since July 2012
4. Meaningless Job Growth Statistics.
Speaking of employment, we were told by the Bureau of Labor
Statistic that the unemployment rate edged down to 7.5%, thanks
to 165,000 new jobs being created in April.
It seems intuitive: more jobs, lower unemployment. But if we
dig a little deeper we find things aren't quite as intuitive as
The unemployment rate factors in only those actively seeking
work. If you've thrown up your arms in frustration and taken to
Grand Theft Auto
full time, you're no longer considered unemployed.
The sad truth is the labor force participation rate remains at
a decades-low 63.3%. If participation had held constant since
December 2007, when the recession started, the unemployment rate
would be 11%.
5. Dependency Rising.
This is the most subtle and troubling indicator of the five,
because government dependency rots the very foundation of
economic prosperity - a productive, self-sufficient labor
Sadly, our society is becoming less productive and less self
The latest USDA report shows the number of Americans on food
stamps hit an all-time high last month. According to the
bureaucrats at the USDA, 47.8 million Americans - that's 15% of
the population - are subsidizing their food intake at taxpayer
expense. Concurrently, the number of Americans receiving federal
disability benefits hit a record 10.96 million in April - marking
the 195th consecutive monthly increase.
Dependency and idleness are hardly the mettle of a great
One, two or even three of these factors set on the same
disturbing trajectory might make no difference. But if all five
take to the road to perdition, the stock market, the economy, and
our financial security will be the worse for wear.
And that's why I tend to see things a little half empty these