I recall how once an eagle-eyed appraiser who checked out my house as part of my effort to re-fi my home loan spotted an area of dry rot in a small section of my home's façade. I took his advice to repair the affected boards licketysplit. Knowing nothing about carpentry, I could never have spotted that problem, and even when he pointed out the problem to my face, I still couldn't quite grasp what was going on.
I think something similar is happening with the U.S. and global economy. It seems like every other article on Seeking Alpha and all financial media repeatedly warn about deep-seated problems in the economy. This is something I can see, because I (like most of our readers) have knowledge of the area. But somehow policymakers seem unprepared or just without any ideas as to how to remedy too-big-to-fail banks, deflationary trends or an unsatisfactory gig economy.
I'd say today's best article on this topic comes from Kevin Wilson, who poignantly notes the deepening collapse in public confidence that our unreformed economy is causing. I quote:
"Given the absolutely appalling size of the banking crises in 2008, in 2012, and now again in 2016, and the 'need' during each crisis to partially resolve it with government bailouts, the cost to the general public has been shocking in scale…and each new crisis … has the potential to trigger a massive new fiscal cost that will hit the public yet again. Governments have already responded with money printing or debt monetization; it is hard to see how this can continue without markets and the public losing faith in the system at some point."
Of course, there's a big debate on what an investor should do about all this -- Wilson likes long bonds, some advisors (Eric Nelson comes to mind) want to stay long stocks and stay the course, and many investors cling to gold at times such as these. SA is home to quite a few gold bugs, as it happens. To that end, I was impressed with ETFguide's (Ron DeLegge's) article today on where gold fits within a portfolio. Rather than enter the debate about whether gold should be added to one's collection of guns, ammo and canned beans or be viewed as no better than a pet rock, DeLegge takes a dispassionate and constructive view at the yellow metal's function in a portfolio.
Your own thoughts on dry rot, economic rot or whether this is all just a lot of rot are welcome, as always, in the comments section.
Herewith, today's advisor-related links:
- Alexander Valtsev walks you through the steps to create your own structured product for downside protection and upside potential.
- Jesse Felder on an odd market dichotomy: bonds are pricing in Armageddon, stocks a new Golden Age.
- The Heisenberg: Japan's new helicopter money policy, currently bolstering stocks, can't work.
- EU Commission cuts UK and Eurozone growth forecasts.
- Rodney Johnson tells a tale of Twinkies and changing business models.