The Wisdom of Looking Like an Idiot Today

The Wisdom of Looking Like an Idiot Today

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<stro />PRINTER-FRIENDLY VERSION</strong> PRINTER-FRIENDLY VERSION

Now is the time to act with the courage of our convictions

by Adam Taggart, Peak Prosperity


IF you can keep your head when all about you,
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
- opening stanza to Rudyard Kipling's, "If"

 

So, let's say you're a prudent person who has concerns that our economy isn't 'recovering' as robustly as you'd like.

Perhaps you still remember the speed and depth of the 2008 credit crisis' arrival, and its toxic impact on asset prices, jobs, and overall trust in the financial system. Maybe you took notes during the preceding tech and housing bubbles and their aftermath. If so, you likely swore that "Never again!" would you put your wealth at risk during such obvious times of public mania.

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Chances are, you've probably logged a lot of hours over the past several years on the Internet trying to read the economic tea leaves more closely. Are things becoming more stable, or less? What are "safer" measures for protecting and building wealth than simply putting all your chips into the paper markets (stocks & bonds) and real estate?

As a result, you've probably had a smaller percentage of your wealth in the stock/bond markets over the past few years than your peers. You probably also own some gold and silver, likely having bought much of it between 2009-2011 with the stock market collapse still fresh in your memory. Chances are also good you've made a series of "preparedness" investments (stored food, etc) as an insurance policy in case really tough times were to break out. Most of your family and friends didn't take these steps, nor are particularly interested to talk about your reasons for taking them.

So, if this sounds at all like you: five years after the 2008 crisis, how is the "prudent" strategy looking today?

Looking Like An Idiot

As one who took similar steps, I'll confirm it looks pretty lousy to the casual observer.

Stocks & Bonds

There has been an absolute party in the stock market over the past two years. The S&P is up nearly 40% (!) since early 2012 and has almost tripled since its 2009 lows. It's been nearly impossible not to make money in the stock market recently (unless you've owned mining shares).

Bonds have remained at historically-elevated prices. And although 2013 has seen prices come off slightly from their highs, prices are still substantially above pre-crisis levels.

The pumped-up performance of paper assets here is of course due to the staggering amounts of new money the Fed has been creating since 2008. Starting with a balance sheet of $880 billion pre-crisis, the Fed has since expanded it by an additional $3 trillion. In less than 5 years. And it's continuing to expand to the tune of $85 billion (some calculate $100 billion) per month.

Most of that money sits in excess reserves enriching the banks at zero risk, at high hidden cost to the public (a rant for another day). But enough of it is sloshing over into the markets where it does exactly what excess liquidity always does: rise all boats.



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