Where's the Economy Going
November 15, 2009
– Comments (32)
I am at my second year out of the market and I feel no more ready to re-enter the market now then I did a year ago, then I did when I exited all of my positions.
Certainly there are lots of things that have happened that I would not have predicted. I would not have predicted that practically every government in the world would jump onto the spend money we don't have band wagon, and spend money to levels of extreme not previously seen. In Canada the bozos we have in office managed to go from a $15 billionish surplus to a $50 billion deficit.
Many times I have said that Brian Molroney is Canada's more unrecognized Prime Minister for what he did for Canada, which was control our debt and get us on track to the path to paying it backing. He was the a strong economic voice about the degree of trouble Canada was in because of the debt and there doesn't seem to be a single world leader even marginally his equal in terms of fiscal policy. They are all set on ensuring we break the system.
So, right now the economy is being run on government debt and government revenue from taxes is dramatically down, everywhere. The down is from people not working and people not spending.
So, we set up system where the burden of paying the government bills falls on fewer people and governments are going to have to raise taxes. It means that people that are working are going to have less disposable income. How are jobs created when people have little money to spend?
Governments are carrying an unsustainable level of debt. They are running deficit budgets in a low interest rate environment. Eventually risk has to be built back into interest rates and the burden of debt servicing can wipe out government's ability to continue offering the services it currently offers.
I just don't see how investing now when there is simply going to be a lot of hard times coming is wise. I can not predict which companies will survive, but I do think some companies that people assume will always be there are not going to make it. Just as governments are over burdened with debt, well, I think there will be "payback" for the stupidity of taking on debt to do share buybacks. One thing that I found looking at these companies was that for many the number of shares of did not decline much because of the econormous constant dilution of shares with stock option programs for employees and executives. So, you are essentially left with companies that squandered all of their profits and future profits equal to the debt taken on plus interest. Just what the companies did to themselves means that their earnings would decline as that burden takes a significant chunk out of profits, and now add reduced business due to a bad economy.
When I entered the market about 10 years ago with a financial advisor, already a number of thing that had be taught to me as truth I found lacking. When I thought these things through I kept coming up with these things were not true for me because of where I was in the age cohort relative to the baby boomers. So, I decided to pretend I was at the top of the baby boomers and anticipate what they'd be doing next and make sure I was ahead of the game, rather then picking up crumbs again. I figured that somewhere when they were in their 60s they'd stop adding to their investments and start pulling investment money. Supply and demand simply says that as the group of retirees grows, it has to have a downward effect on stocks. Ten years ago I decided that I was going to be in the first group out of the market.
This baby boomer demographic thing affects everything. For the housing market, well, being at the back end of the baby boomers, demand for housing was good for builders for more then 20 years prior to me wanting to own a home. It is one of the things in addition to the low rates that resulted in the "truth" that a home is always a good investment. Baby boomers with disposible income wanting to save for retirement have made far more money available to purchase investments and that has pushed up the stockmarket beyond where it would be if there wasn't a population bubble.
And now it is time for that population bubble to start planning for spending in retirement, not saving for retirement. There is going to be a continuing growth of money being permanently removed from the market as the baby boom population bubble ages, at the same time companies have done such a good job at destroying their foundation with the massive debt loads.
I am sure that people will continue to make money on the stock market, but I think the masses are going to lose. I did exceptionally well when I was in the market, but I spent hours upon hours studying it and I just don't have the time for that. So when I consider how I feel about the market as a whole, if you want to be a low maintenance investor, well, I think overall that is going to be a losing position.
So, I will continue watching the market, but when I think through the population bubble and how that might affect investments, government debt, high unemployment, etc., I just can't see the market doing well.
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