The rise in equities does not mean stocks "buy" more commodities in the real world - they buy less.
Since quantitative easing (QE) became the policy of the world's major central banks, capital is being herded into fewer and fewer asset classes. With such huge volumes of money at play, very crowded trades in assets like stocks and housing have resulted - bringing us back to familiar bubble territory in record time. The key for the individual, as Pretti emphasizes in this excellent interview, is risk management. The safety many investors believe they are buying in today's markets is not real... "this comes down to individual families making an assessment of how much risk they can afford to take. Below that line, they do not allow it to happen. It may sound trite but: You have every day of your life to get back into the market, but sometimes you do not have a second chance to get out."
As we enter 2014 mainstream economists relying on inaccurate statistics, many of which are not even relevant to a true understanding of our economic condition, seem convinced that the crises of recent years are now laid to rest. If we objectively assess the state of the labour markets in most welfare-driven economies the truth conforms to a continuing slump; and if we take a realistic view of price increases, including capital assets, price inflation may even be in double figures. The corruption of price inflation statistics in turn makes a mockery of GDP numbers, which realistically adjusted for price inflation are contracting. This gloomy conclusion should come as no surprise to thoughtful souls in any era. These conditions are the logical outcome of the corruption of currencies and the effect of unsound money... and two conclusions for 2014...
The Future of Money: The Dumb Dollar vs Smart, Programmable Currencies!
While the growth of inequality in America has been heavily discussed here, it was Stan Druckenmiller's outbursts (and warnings that "from beginning to end - once markets adjust from these subsidized prices - that the wealth effect of QE will have been negative not positive") that brought it more broadly into the average American's mind. QE, taxes, income disparity, and entitlements are four major means by which wealth is transferred from the poor and the middle class to the rich. The following simple chart explains it all...
2013 already saw violent unrest in some of the most stable countries in the world like Singapore and Sweden, all underpinned by absolute disgust for the status quo. Whether today or tomorrow, this year or next, there will be a reckoning. The system is far too broken to repair, it must be reset. It’s simply absurd to look at the situation objectively and presume this status quo can continue indefinitely... that this time is different… that we’re somehow special and immune to universal principles.
How many people in the financial services industry understand how the financial system works?
We've all experienced it, we are dealing with someone who has all sorts of masters degrees, PhD's, and doesn't know the Federal Reserve is a private corporation, and even doesn't know the product their company is selling.
In the spirit of professionalism, we must keep these quotes anonymous, but certainly if you have survived long enough in Finance or read the Financial news regularly, you will not need any references because you've probably heard it before.
Either the Volcker Rule is making Wall Street's menu of investment choices so unbearably limited, or traditional assets are so overpriced Wall Street won't even touch them with other people's money, but when it comes to allocating capital the smartest conmen in the room are coming up with some truly unorthodox products. Such as investing in ex-convicts in the form of 2000 newly released prisoners.
Is the U.S. consumer tapped out? If so, how in the world will the U.S. economy possibly improve in 2014? Most Americans know that the U.S. economy is heavily dependent on consumer spending. If average Americans are not out there spending money, the economy tends not to do very well. Unfortunately, retail sales during the holiday season appear to be quite disappointing and the middle class continues to deeply struggle. And for a whole bunch of reasons things are likely going to be even tougher in 2014. Families are going to have less money in their pockets to spend thanks to much higher health insurance premiums under Obamacare, a wide variety of tax increases, higher interest rates on debt, and cuts in government welfare programs. The short-lived bubble of false prosperity that we have been enjoying for the last couple of years is rapidly coming to an end, and 2014 certainly promises to be a very "interesting year".
The following 8 key dynamics (from government over-reach and economic stagnation to civil discontent and beyond) will play out over the next two to three years...
Much of the Arab world remains in upheaval in the wake of the so-called 'Arab Spring'. Egypt has always been considered a pivotal Arab state – it is both the most populous as well as located in a strategically important spot. It has become quite a steep fall from grace. Within 18 months, Egypt's Muslim Brotherhood has moved all the way from winning the presidency and ruling the country to once again becoming outlawed. During the Christmas holidays the military council currently administering Egypt saw fit to declare the Brotherhood a 'terrorist organization'. The latest escalation clearly shows that the hardliners remain firmly in control in Al-Sisi's government, and it is yet another dangerous gamble that may turn out to be yet another miscalculation. Too many in Egypt feel they have little to lose and it is well known from historical examples that creating martyrs isn't likely to stop a movement that enjoys fairly broad popular support.
Money is only as useful as to what it can purchase. The Fed has created a system where debt is now equal to money. This is why big purchases like cars, housing, and even going to college are only feasible by mortgaging your future for many decades. Since the payments are broken down into tiny monthly installments many people pay little attention to the true cost of things over their lifetime. Yet, as MyBudget360 shows, over time, the U.S. dollar has lost a tremendous amount of purchasing power due to inflation. Inflation slowly eats away at your purchasing power yet having access to debt has given the middle class the false impression that they are still protected from the unraveling impacts of inflation. They are not...
A look ahead into 2014.
Capitalism means failure if you screw up. But under Bernanke’s watch, “capitalism” meant giving trillions in taxpayer money to those who screwed up.
There are those who would blame the people who have chosen to live far beyond their means. They have a point. The financialization of America; where Wall Street con artists,shysters and swindlers rake in billions for shuffling paper and making risky casino bets; mega-corporations ship blue collar middle class jobs to Asia in an all out effort to increase quarterly profits; politicians spend future generations into the poor house in order to get re-elected; and the Federal Reserve purposefully creates monetary inflation to prop up the corrupt system; has systematically destroyed the working middle class and created generations of debt slaves. The American people have been foolish, infantile, and easily duped. But it is clear to me who the real culprits in our long downward spiral have been. Lord Acton stated the obvious, many years ago:
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
? John Emerich Edward Dalberg-Acton