Tags: Congress | debt | budget | economy

It's Going to Be a Rough 2015 for Investors

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Monday, 29 Dec 2014 08:08 AM Current | Bio | Archive

Why is the Dow Jones Industrial Average at 18,000? Can it be that the economy is so terrific that the corporations are just racking up record profits and that investors are clamoring to get in on the good times?

Listening to the talking heads on the business news programs I wonder if they are living in the same world that I'm experiencing.

Then again they're broadcasting from New York and I'm writing this in Miami. New York is a city characterized by its total dysfunction. Not much different than Washington, D.C. is.

At one end of the societal spectrum are the rich, who are mostly associated with the financial industry as well as crooks and thieves who are fleeing their home countries with their stolen and certainly untaxed loot.

The financial industry has been the largest beneficiaries of the government largesse for the past six years. The United States is $18 trillion in debt keeping them living a life of luxury.

At the other end of the societal spectrum are the welfare recipients, who also benefit from the government's largesse, although not quite at the same standard of living.

The way I see it both these ends of the societal spectrum are parasites living off the hard work of taxpaying middle-class businesses, employees and investors.

As we plunge into 2015, Congress gifted the financial industry the ability to continue the derivative game that created the last financial disaster. Remember the Troubled Asset Relief Program (TARP) and the stimulus packages? The Federal Reserve created something called quantitative easing whereby it created money out of thin air. In private industry it is called forgery.

TARP handed over $897 billion as a down payment, which quickly disappeared without so much as a Thank you and a kiss on the ear. The trillions more in quantitative easing is in reality nothing more than a tax on middle-class consumers who got nothing in return.

Did it work? Sure. It made those working on Wall Street rich. It saved the financial industry, which was going bankrupt.

Did it help you? No, it didn't.

The big banks rebuilt their balance sheets and have become the "too big to fail" banks again. The local and regional banks, credit unions and everyone not too big to fail got squeezed in the process. What they lost financially the big banks gained.

So what makes you think things are going to get better in 2015?

They're not.

Congress and the president didn't save the world's financial system. They just delayed the inevitable. Interest rates cannot be suppressed forever and bankrupt financial companies will need to be broken up either in a bankruptcy or by other legal means.

The stock market rise is the result of suppressed interest rates. The ability of the Fed or any of the other central banks to manipulate the markets is dwindling.

There is some $40 trillion of exposure right now in derivatives alone.

Oil prices are dropping because Saudi Arabia understands that only by driving down the price of oil can they destroy the ability of Iran to continue financing the Jihadist efforts to destroy them. Oil production fortunately is growing in the United States in spite of the president's efforts to undermine this.

Commodity prices are dropping since China can no longer keep up the façade of an expanding economy. Its economy is teetering. Communist governments never could do free-market capitalism very well.

It has reverberations that Wall Street would like to ignore. The Dow is based largely on corporations that earn a significant part of their projected profits from outside the United States.

If outside the United States goes into the economic pits, then will the projected earnings that are supporting the stock price valuations be actually realized?

Japan is in recession and the EU is heading into the abyss, economically speaking. Russia, Brazil and India are all in deep trouble.

The Middle East and North Africa are in turmoil. Sub-Sahara Africa depends on foreign direct investment from countries that have less capital to invest and even less of an appetite for risk.

The United States is the best house in a very crappy neighborhood, so to speak, but it will need all its available capital to repair its own house.

The last major action of the U.S. Congress in 2014 was to pass a $1.1 trillion spending bill that counterproductively keeps the flow of government welfare going to the rich and the poor alike — all of it off the backs of the middle class.

The federal debt cap was raised last March. The budget and any further talk of spending reform have been kicked over to next fall. In the meantime, it is easy to speculate that when the debt cap comes up again in 2015 it will be raised because nobody wants to shut down the government just when the presidential race for campaign contributions and votes is getting started.

Then, in the fall of 2015, the budget will be rolled over once again (with increases in spending and special interest goodies) because no one wants to shut down the government when the primaries are just about to get started and there is still plenty of money to borrow left in the debt cap.

What does this mean?

Today is the best the economy is going to be for a very long time. The die is cast. It will all just play out from here.

It's going to be a rough year for investors.

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Kleinfeld
Why is the Dow Jones Industrial Average at 18,000? Can it be that the economy is so terrific that the corporations are just racking up record profits and that investors are clamoring to get in on the good times?
Congress, debt, budget, economy
912
2014-08-29
Monday, 29 Dec 2014 08:08 AM
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