Sometimes, artificial has its advantages – whether that means artificial sweeteners, artificial intelligence, or artificial Christmas trees.
Most would agree there’s no advantage to getting artificial or fabricated news and information. Certainly, no one wants phony information that promotes financial tools or strategies that are artificial, or fake.
Yet, thanks to cultural and economic changes that have occurred over the lifetime of baby boomers, and especially in the last ten years – both of those dangers have become more prevalent than ever.
That’s why I recently invited Robert Kiyosaki to appear on my Newsmax TV show, "The Income Generation." Kiyosaki is the best-selling author of the groundbreaking personal finance book series, "Rich Dad Poor Dad," and his latest book is titled "Fake: Fake Money, Fake Teachers, Fake Assets: How Lies Are Making the Poor and Middle Class Poorer."
When I asked Kiyosaki for his advice on how investors could avoid being led astray by all the fakeness in the financial news, he said, “Be very careful who you get your financial education from. You better find out who’s real and who’s fake…choose you teachers wisely.”
This is certainly wise advice considering that we’re living in what I like to call the “new age of economic uncertainty.” Much of this uncertainty stems from the fact that the financial markets – and the global economy – seem to have become overly dependent on artificial factors.
It’s these artificial factors that have led to a fundamental and very dangerous disconnect between economic reality and stock market performance.
This movement toward fakeness in the economy and markets began decades ago, but has reached increasingly dangerous levels in the 10 years since the financial crisis.
That’s when the Federal Reserve began rewriting the playbook – and it didn’t take long for other central banks around the world to follow suit. This rewrite actually began months before the start of the financial crisis, when then Fed Chairman Ben Bernanke called an emergency meeting.
With warning signs about the subprime mortgage crisis and fears of a recession mounting, the Fed agreed to lower short-term interest rates by three quarters of a percent. That was triple the adjustment they might make normally – and today that emergency meeting in January 2008 is seen as a pivotal event.
It’s recognized as a clear sign that the Fed was going to play by new rules in response to any future financial crises. It was a sign that it intended to focus more on artificial strategies aimed at quick fixes than on long-term approaches that would allow the markets to function organically.
Sure enough, once the recession and stock market crash hit, the Fed started multiple rounds of quantitative easing (QE), which involved buying up trillions of dollars of mortgage-backed securities and treasuries.
Wall Street loved QE because it created a flow of cheap money and drove everyday investors up the risk curve – meaning into the stock market – by making other investment options appear less attractive.
The stock market soon became more dependent on the Fed’s artificial strategies than on economic fundamentals. As a result, the market rose by over 300% between 2009 and 2018 – despite GDP growth remaining right around 2% or lower.
While the Fed’s experimentation started under Ben Bernanke, it continued under the next Fed Chair, Janet Yellen – who inherited the job of eventually ending QE and trying to normalize Fed policy again. However, that has proven difficult – largely because of the stock market’s new addiction to artificial stimulus, a.k.a. economic steroids.
I’ve always likened the Fed’s overuse of QE to steroid use by an athlete. That’s not only because steroids enhance an athlete’s performance artificially, but because their side effects can continue long after an athlete stops taking them.
That’s why even though the third and final round of QE ended in 2014, the financial markets are still dependent on, and being largely driven by, economic steroids.
We all know the potential long-term dangers of artificial substances like steroids – especially once the body becomes dependent on them. Eventually, the body has to break that dependency, and that process can be painful.
By the same token, eventually the economy and markets will have to make fundamental sense again – and that process is also likely to be painful. But it doesn’t have to be so painful for you.
By following Robert Kiyosaki’s advice and making sure you get your financial information and education from a reputable source, you’ll be better able to sort through the media hype so you can focus on the facts that matter most to your retirement.
My show "The Income Generation" is a great way to do that!
David J. Scranton, CLU, ChFC, CFP, CFA, MSFS, is a nationally renowned money manager, Amazon Bestselling author, national TV host of Newsmax TV's "The Income Generation," founder of Sound Income Strategies, LLC, and CEO and founder of Advisors’ Academy. With over 30 years of experience in the industry, Scranton specializes in income-generating savings and conservative investment strategies.
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