My 5 Pillars of the New Financial Reality
In this story, CNBC puts out one of its typical features, how a new reality ought to dictate your retirement plans. But this story not your typical ho-hum retirement gibberish, there is some real food for thought here, although the themes are not as raw as I would have them be. Therefore, without further ado, I offer you my no punches pulled 5 Pillars of the New Financial Reality.
1) The US Federal Government is Broke - A few of CNBC's pillars fall under this category. As a broke entity the government will attempt to get out of its obligations. The easiest obligations to weasel out of are non-bonded promises. Pensions, Medicaid, Medicare, and Social Security will, at best, be purposefully drained of purchasing power as governments stealthily reduce benefits, and, at worst be cut outright. Other aspects of this theme are that there will be more Detroits, so be wary of munis and plan for your state or local pensions to get cut. Also, don't get all conspiracy whacked out like me, but at least be wary of outright government theft of private assets. The Poles are just the latest to get robbed by their government, Argentina style. Can't happen here? Ask the Chrysler bondholders how that worked out and google Teresa Ghilarducci.
2) Inflation is Coming - Inflation is already here via the crappify, but outright inflation is coming too. At this point, keeping interest rates low is an imperative for our government to a) keep its interest rate bill affordable and b) inflate away its potentially catastrophic liabilities. This has many implications from having a bias toward stocks and certain types of stocks to being a net debtor with non-adjusting debt payments (30 year jumbo mortgage!) to looking at commodities. This combined with #1 means stay away from Treasuries or, if you must own Treasuries, never go farther than say 2 years out
3) Global Warming Is Dead - From a policy perspective that is. The climate will do what it does but there ain't gonna be a re-ordering of the global economy cooked up by the warmists. If you've been scared out of energy investments by the incessant bleating of global warmists, you've got to get back in. The world needs energy and it can't afford phony energy, so get invested in energy that works. So don't invest in solar or wind or any of that garbage (if any of it does turn out to actually work, the Exxons of the world will wind up owning it ultimately anyway). Furthermore, those in thrall to the religion of climate change will wake up; expect Europe to drastically improve its competitiveness by jettisoning decades of wrong-headed warmist policy.
4) The Future Does Not Belong to China - China will do fine, but they will have major challenges and multiple hiccups on the way from a cheap labor, export driven economy to a domestic consumption economy. Also, to believe that the future is Chinese, you need to believe that something like 250,000 elderly communists can successfully plan and manage an $8.4 trillion economy for the benefit of 1.3 trillion people. No way. If leadership doesn't screw it up, China will grow acceptably but always be an economic follower. If they screw it up, well, China explodes. Heads China loses, tails they tie. Bad bet.
5) War Is Coming - The global financial crisis (which is a combination of the US sub-prime mortgage crisis and the European sovereign debt crisis) has given capitalism and relatively free markets a bad name, resulting in all sorts of socialists of one breed or another taking power throughout the world (most notably in the USA). After destroying their own countries' economies and with no levers left to pull at home all commie tyrants go to war. Furthermore, the US has historically kept a lid on expansionist tyrants and plain ole' bad guys. After eight years of Barack Obama, the lid lies in the dustbin. Bad actors will have the leeway to be aggressive and aggressive they will be. Syria is just a minor example. It is hard to figure out how increased military conflict will affect markets, but give it some thought because it's coming.
1) The US Federal Government is Broke - A few of CNBC's pillars fall under this category. As a broke entity the government will attempt to get out of its obligations. The easiest obligations to weasel out of are non-bonded promises. Pensions, Medicaid, Medicare, and Social Security will, at best, be purposefully drained of purchasing power as governments stealthily reduce benefits, and, at worst be cut outright. Other aspects of this theme are that there will be more Detroits, so be wary of munis and plan for your state or local pensions to get cut. Also, don't get all conspiracy whacked out like me, but at least be wary of outright government theft of private assets. The Poles are just the latest to get robbed by their government, Argentina style. Can't happen here? Ask the Chrysler bondholders how that worked out and google Teresa Ghilarducci.
2) Inflation is Coming - Inflation is already here via the crappify, but outright inflation is coming too. At this point, keeping interest rates low is an imperative for our government to a) keep its interest rate bill affordable and b) inflate away its potentially catastrophic liabilities. This has many implications from having a bias toward stocks and certain types of stocks to being a net debtor with non-adjusting debt payments (30 year jumbo mortgage!) to looking at commodities. This combined with #1 means stay away from Treasuries or, if you must own Treasuries, never go farther than say 2 years out
3) Global Warming Is Dead - From a policy perspective that is. The climate will do what it does but there ain't gonna be a re-ordering of the global economy cooked up by the warmists. If you've been scared out of energy investments by the incessant bleating of global warmists, you've got to get back in. The world needs energy and it can't afford phony energy, so get invested in energy that works. So don't invest in solar or wind or any of that garbage (if any of it does turn out to actually work, the Exxons of the world will wind up owning it ultimately anyway). Furthermore, those in thrall to the religion of climate change will wake up; expect Europe to drastically improve its competitiveness by jettisoning decades of wrong-headed warmist policy.
4) The Future Does Not Belong to China - China will do fine, but they will have major challenges and multiple hiccups on the way from a cheap labor, export driven economy to a domestic consumption economy. Also, to believe that the future is Chinese, you need to believe that something like 250,000 elderly communists can successfully plan and manage an $8.4 trillion economy for the benefit of 1.3 trillion people. No way. If leadership doesn't screw it up, China will grow acceptably but always be an economic follower. If they screw it up, well, China explodes. Heads China loses, tails they tie. Bad bet.
5) War Is Coming - The global financial crisis (which is a combination of the US sub-prime mortgage crisis and the European sovereign debt crisis) has given capitalism and relatively free markets a bad name, resulting in all sorts of socialists of one breed or another taking power throughout the world (most notably in the USA). After destroying their own countries' economies and with no levers left to pull at home all commie tyrants go to war. Furthermore, the US has historically kept a lid on expansionist tyrants and plain ole' bad guys. After eight years of Barack Obama, the lid lies in the dustbin. Bad actors will have the leeway to be aggressive and aggressive they will be. Syria is just a minor example. It is hard to figure out how increased military conflict will affect markets, but give it some thought because it's coming.
posted by Donny Baseball at 5:35 PM
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