Thoughts going into the weekend
The Federal Reserve undertook action for what I feel is going to end up being a disaster. QE3 (Quantitative Easing round three - after 2 rounds totaling $1.2 trillion in 2008-2011) was announced yesterday in an effort to jump start the economy.
Here is what I predict will happen. The stock market will rise another 3%-5% for the remainder of the year. Wall Street, hedge fund and mutual fund managers will be pleased.
Now for the bad news. QE is flooding the system with dollars, lots and lots of dollars. Since oil and gold are priced in dollar terms, what will occur is commodity inflation. So get ready for $1,800 or more gold and a barrel of oil to be comfortably in the $100-$110 bbl range and of course the price of a gallon of gas should remain high as well. In addition, food prices will also increase. This is not good at all for the average citizen’s pocketbook.
Disposable income will suffer and consumer confidence will remain muted even though your 401k statement just showed nice gains. On top of this, the world economy will suffer for the same reasons as “King Dollar” will be weak and European economies already in a recession will not recover quickly. (Like a snowball rolling down hill in my opinion.)
On a side note, QE1-2 is speculated to have led to the initial Arab Spring in Egypt as food inflation was a major trigger point to the masses Cairo initially protesting. The devil we knew (Hosni Mubarak regime) in Egypt was better than the devil we don’t know (Muslim Brotherhood).
Now this leads me back to Wall Street. Yes, I am partial to the Wall Street world as I have been employed at research and brokerage firms in some capacity since 1986. Is Wall Street evil – No. I can find extreme examples of bad, inefficient, ineffective behavior in all walks of life and the dollar amounts are all about the same. A trader, CEO, ballplayer, actor and musician get paid a few million dollars. They are the 1% - every walk of life has a 1% (even the Occupy Movement comically had a 1% fiefdom). However, Wall Street really does serve a purpose. An investment banker is paid on performance and takes the risk and commitment to fund start-ups and established companies in need of cash. Did the banker who advised Apple/Microsoft in the 1970s and provided them access to the capital markets deserve his multi-million fee? (I think so!). Now, if a singer does not put out a hit or an actor has a movie flops do they give that money back? A banker only gets paid if a deal sells, an actor gets paid regardless of the outcome. If the banker left society, commerce would theoretically stop. If the actor/athlete/musician left society we would go on without a blip.
On the flipside, 110 million Americans are on some form of welfare. This is a large amount. There are also over 25 million using illegal drugs and 40% of babies are born to unwed mothers. I bring this up as examples of people making wrong or unplanned decisions that lead to future consequences. Yes, some welfare recipients are in need of a helping hand. I am near and dear to this in many ways (every one has extended family drama!). In the short run, welfare/workfare is the answer. Then once on your feet, go back out to society. Drug addicts, convicted felons and unwed mothers are three examples of the subset of 110 million that made their own irresponsible decisions and I do not want to support their bad behavior with federal tax dollars. There are many philanthropic organizations which have funding to provide support and the guiding hand. They are better equipped with the proverbial fishing pole rather than the government fish to lift those less fortunate back to being contributing members of society.
I want to be clear that I am not for the rich and against the poor. I believe in helping the less fortunate, but it is a two way street. They have to accept the assistance with the understanding that they will eagerly try and get back to being a functional member of society. A welfare mother who collects $35,000 in assorted welfare checks, food stamps and rental assistance is not going to eagerly seek even a $40,000/year job (why should she!) The government dole is inefficient, corrupt and is taken advantage of at every level. Philanthropic entities are better equipped to deal with the less fortunate. Believe me, the 1% (I hate that phrase) are a sympathetic bunch and they will continue to open their hearts and wallets to assist the needy. I believe they could and would do that in greater numbers if their taxes were lowered as well. (I will leave the tax discussion for a later post).
I hope all of these rambling thoughts tied together in some way. Email me with your thoughts.
Here is what I predict will happen. The stock market will rise another 3%-5% for the remainder of the year. Wall Street, hedge fund and mutual fund managers will be pleased.
Now for the bad news. QE is flooding the system with dollars, lots and lots of dollars. Since oil and gold are priced in dollar terms, what will occur is commodity inflation. So get ready for $1,800 or more gold and a barrel of oil to be comfortably in the $100-$110 bbl range and of course the price of a gallon of gas should remain high as well. In addition, food prices will also increase. This is not good at all for the average citizen’s pocketbook.
Disposable income will suffer and consumer confidence will remain muted even though your 401k statement just showed nice gains. On top of this, the world economy will suffer for the same reasons as “King Dollar” will be weak and European economies already in a recession will not recover quickly. (Like a snowball rolling down hill in my opinion.)
On a side note, QE1-2 is speculated to have led to the initial Arab Spring in Egypt as food inflation was a major trigger point to the masses Cairo initially protesting. The devil we knew (Hosni Mubarak regime) in Egypt was better than the devil we don’t know (Muslim Brotherhood).
Now this leads me back to Wall Street. Yes, I am partial to the Wall Street world as I have been employed at research and brokerage firms in some capacity since 1986. Is Wall Street evil – No. I can find extreme examples of bad, inefficient, ineffective behavior in all walks of life and the dollar amounts are all about the same. A trader, CEO, ballplayer, actor and musician get paid a few million dollars. They are the 1% - every walk of life has a 1% (even the Occupy Movement comically had a 1% fiefdom). However, Wall Street really does serve a purpose. An investment banker is paid on performance and takes the risk and commitment to fund start-ups and established companies in need of cash. Did the banker who advised Apple/Microsoft in the 1970s and provided them access to the capital markets deserve his multi-million fee? (I think so!). Now, if a singer does not put out a hit or an actor has a movie flops do they give that money back? A banker only gets paid if a deal sells, an actor gets paid regardless of the outcome. If the banker left society, commerce would theoretically stop. If the actor/athlete/musician left society we would go on without a blip.
On the flipside, 110 million Americans are on some form of welfare. This is a large amount. There are also over 25 million using illegal drugs and 40% of babies are born to unwed mothers. I bring this up as examples of people making wrong or unplanned decisions that lead to future consequences. Yes, some welfare recipients are in need of a helping hand. I am near and dear to this in many ways (every one has extended family drama!). In the short run, welfare/workfare is the answer. Then once on your feet, go back out to society. Drug addicts, convicted felons and unwed mothers are three examples of the subset of 110 million that made their own irresponsible decisions and I do not want to support their bad behavior with federal tax dollars. There are many philanthropic organizations which have funding to provide support and the guiding hand. They are better equipped with the proverbial fishing pole rather than the government fish to lift those less fortunate back to being contributing members of society.
I want to be clear that I am not for the rich and against the poor. I believe in helping the less fortunate, but it is a two way street. They have to accept the assistance with the understanding that they will eagerly try and get back to being a functional member of society. A welfare mother who collects $35,000 in assorted welfare checks, food stamps and rental assistance is not going to eagerly seek even a $40,000/year job (why should she!) The government dole is inefficient, corrupt and is taken advantage of at every level. Philanthropic entities are better equipped to deal with the less fortunate. Believe me, the 1% (I hate that phrase) are a sympathetic bunch and they will continue to open their hearts and wallets to assist the needy. I believe they could and would do that in greater numbers if their taxes were lowered as well. (I will leave the tax discussion for a later post).
I hope all of these rambling thoughts tied together in some way. Email me with your thoughts.
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