A few days ago, I had my quarterly visit to JP Morgan to visit my money. Like many of you, I am unemployed but in my case it is by choice although I shudder to think about what would happen if I wanted to get a real job at the age of 66 . This means that I live from the earning of my investments. I am very fortunate in having enough assets to support a very comfortable life style (so far) . Those that are still employed are concerned about how the financial markets may impact their future such as their ability to pay for the children’s education or to eventually retire. For me the future is now since I do not have a way to make up for losses. This means I have to think about the financial markets both tactically and strategically. I thought I would share with you some of my conclusions with respect to the USA.
I believe the USA will continue to decline for the foreseeable future
The USA will no longer be the leader of the world. This mantel will pass to china sometime in the next ten years because they have a government that works. For those that find this hard to imagine, you need to review they history of various powerful countries. Start by reviewing the decline of the Great Britain which is not so great these days. Great wars often lead to these declines. In the case of Britain, WWII really did them in. In our case, we created wars that so that we could waste our treasure and blood.
Unemployment is systemic and will only get worse
The percentage of Americans that are part of the work force will continue to decline because of unemployment, aging population and stupid immigration policies. Unemployment is systemic and will only get worse. Employers are getting more out of employees because employees are afraid to loose their jobs. Unions are weak and represent an ever declining portion of the work force. Government will be forced to lay off works and the private sector will not employee these people. There is a major skills miss match. Technology is increasing output. Outsourcing will continue and increase. Most new jobs that will be created are low paying service jobs that cannot be outsource. The government reports on number of jobs but not changes in total income. But government tax revenues are greatly effected by the actual income levels. Right now 50% of workers pay no income tax (they do of course pay payroll taxes and may pay state taxes). There is an enormous short fall between government spending and revenue. If we borrow we are just creating problems for tomorrow. If we do not borrow we are just creating problems for today.
The government of the USA is broken.
The system is broken creating two political parties that are more concerned about staying in power than doing what is right for the country. If the the US Government was a business, its stock would be tanking (they dollar is the stock) and if there was a wise board of directors, the management would be replaced. But we do not really have a board. We just have shareholders (citizens) and they do not really know how to get a new management team in place. I can understand the rage of the Tea Party although I do not agree with their solutions. I wish those on the left would show some rage. I thought Obama might be leader like JFK but he turned out not to be up to the task.
US Corporations are doing well
Many are having record profits. This is a result of great productivity, cheap money and global expansion. We have a stupid tax policy which causes multinational companies to move much of their growth off shore. When every one talks about how much money an Apple, Microsoft, Intel have for instance (I speak of the tech companies because I understand their businesses better) they fail to understand that much of that money was made outside of the USA and can not be brought back here without paying very high tax. So while I am happy to own large cap US companies, I do so knowing that much of their business is not in the USA (less than half). Smaller domestic companies can also do well depending on what kind of business they have. They can pay employees less and borrow at low interest rates.
Growth the last ten years was an illusion.
Most growth was in contraction and finance industries. This was all driven on debt. The only way for contraction jobs to come back would be if we had a major program to rebuild our aging infrastructure and a crash plan to reduce our dependency on oil. This will never happen in the political climate we now have.
The various debt reduction plans from both the democrats and the republicans are fantasies
They are based on the assumption that the economy is going to start growing again and this will mean increases in revenue. And instead of getting us out of Afghanistan which is were Bin Laden put us, we want to cut education.
If this is all news to you, I am sorry that I had to be the one to tell you.