We’re bubbling over yet again! On the surface, the economy looks reasonably strong with home prices and the stock market soaring, retail sales climbing, and unemployment slowly declining. You and I, as people who like to peek under the media veil, know that the foundation underlying the economy could hardly be weaker. Government spending of money that it doesn’t have is supporting a huge swath of the economy (e.g. 90% of the housing market). We don’t know when this superficial recovery will be snuffed out and reality will return, but there is no question that it will happen. As one author wrote “enjoy the party, but dance very close to the door.”
With housing, starts and permits are up along with home values, but a large percentage of the buyers are investors making all cash offers. The regular Joes and Janes of the world cannot afford a house because they have no savings, low income, and too much debt. True unemployment is not 7.7%, but closer to 15-20% when you include the long-term unemployed and part-timers wanting to work full-time.
Many economists and other so-called experts are encouraging the government to spend more now and worry about debt later. Of course, “later” never materializes. As I’ve stated repeatedly in these blogs, the U.S. (among many other countries) needs to get its financial house in order even though we all know that will cause some short-term pain.
Central bankers in the U.S. and Europe have done almost everything wrong in their efforts to prop up the economies and leave the clean-up to future generations. To paraphrase a list from “Sovereign Man”, the central bankers can check off all of the below items even though common sense says that they should have done none of them.
- set interest rates to near zero
- stimulate consumption at the expense of savers
- put too much focus on getting the stock markets to all-time highs
- keep lending money to shaky entities
- prevent banks from having to fix the problems that they helped to create
- drive the currency down
In the U.S., the Fed keeps filling up the punchbowl so that we can stay drunk and happy. Once they run out of intoxicating cash injections, make sure that you’re ready to hit the exits. A good start would be to make sure that you have an ample amount of gold, silver, and other precious metals in your portfolio.
Alan Noblitt is a California commercial note buyer based in San Diego. As a commercial note buyer, his company can buy notes on office buildings, restaurants, vacant lots with improvement, and a whole host of other property types.