Last Friday,I wrote about the D.C. Permanent Class,and I mentioned how I’ve made outstanding investment decisions following their lead over the years.
The column led to a number of reader questions about the future of our U.S. economy. So today,I’m switching my focus from Capitol Hill to Main Street.
I never like to say “I told you so,” but I couldn’t help but feel a sense of satisfaction when the jobs number came out last week.
We told you in July that the government has been consistently exaggerating the number of new jobs. The Obama administration admitted as much when they revised the job numbers backwards for July. Turns out our summer celebration of recovery was premature.
Remember the parade of analysts telling us how great the Obama economy was going to be? Well,they’ve been spreading the same line for nearly five years. Meanwhile,America has struggled through a gut-wrenching recession.
Here again,we warned you not to listen to what the politicians,central bankers,and agency heads say. Instead,you should follow what they do. Let others be fooled by the endless head fakes.
The current unemployment figure peddled by the government is 7.3%. This is a crock. It’s only this low because they’re neglecting to account for the hardcore unemployed,who’ve become so discouraged by the Obama malaise that they’re no longer bothering to look for work.
The labor participation rate is a pathetic 63.2%. This participation rate takes us back to the 1970s,when many women (including my mom) were still staying at home with the kids. I myself was still in high school,and my mother was busy nurturing my younger siblings the last time the rate was this low.
A Look to the Future
It’s gut-wrenching to watch a generation of young Americans suffer so completely. Youth unemployment is still above 16%,and the low wages those in their twenties are earning at their part-time jobs are likely to plague them to retirement.
Never has government at all levels eaten more of the sustenance of the people. We’re finally the collective of Obama’s dreams. Together,we’re all getting collectively poorer.
And as we look ahead,it’s clear that our risks are still enormous.
Despite all the rhetoric from Fed Chairman Ben Bernanke,I believe quantitative easing is far from over. This is another example of “don’t listen to what they say,watch what they do.”The Federal Reserve is continuing to buy more than $85 billion in toxic bonds month in and out. While I’ve never supported this ridiculous bailout of overspending politicians and greedy bankers,sadly,I don’t see it ending soon. Although common wisdom expects the much-trumpeted tapering,when markets actually figure out this was all a ruse,the market reaction will be violent.
Worse yet,the debt virus of the 2008 financial crisis is still with us. Many of our banks have only papered over their balance sheet problems. If the too-big-to-fail banks were forced to mark all assets to their current value,they’d likely fail. Only the Federal Reserve has been busy buying their toxic bonds,and that’s weighing heavily on the U.S. dollar. The dollar has been under pressure,which is counterintuitive considering the dramatic hike in interest rates we’ve suffered.
That’s why in our sister publication, Constitutional Wealth,we continue to accumulate select precious metals mining shares as a hedge against inflation.
Additionally,I advise you to be very cautious about the banks where you do business. Don’t count on FDIC insurance to save you in the next crisis. The FDIC insurance fund has problems. In fact,I believe we could see a situation similar to the one that occurred in Cyprus. Cypriot banks were bailed out by depositors,as opposed to the government. Politicians have become enamored with the idea of seeing banks bailed out without “their” government funds being used.
And what does this mean for stocks? It means that the caution lights are still blinking,and you need to be actively protecting yourself. Buy only the strongest firms with limited debts. I recommend being overweight in large capitalization shares. Dividends should also be sought,and don’t feel pressure to invest all your cash.
Stocks should continue higher in nominal terms,but this is only because the inflation rate the government trumpets is as fictional as the unemployment rate. It’s always a good idea to keep 10% to 15% of your net worth in precious metals.
And buckle your seatbelts… I expect a rough road ahead.
This commentary originally appeared at CapitolHillDaily.com and is reprinted here with permission.