I readily admit that I am continually appalled by a U.S. economy that seems hollow and a market that seems propped up. Today I was stunned to read in an article by David Goldman (see the first of my links, below) a fact of which I was previously unaware. I quote:
"Startup businesses contributed virtually zero new jobs during the post-2009 employment recovery. Nearly all the employment growth since the depth of the Great Depression came among the 1,500 largest American public companies by market capitalization."
You see the irony here? Americans always prided themselves on our unique dynamism, entrepreneurialism and the social and economic mobility that afforded. This economic exceptionalism contrasted in particular with an effete, stultifying and bureaucratic Europe.
The U.S. economy since the Great Recession sure doesn't feel like the America most of us grew up in. (Indeed, see my second link below to an article by Ian Bezek questioning whether 97% of today's "entrepreneurs" are legit.)
I know I'm far from alone in feeling this way about the economy. Yet I want to quickly and forthrightly state the obvious point that my cohort of econo-skeptics are overrepresented among investors who lost the most money or opportunity over the past eight years. I would further venture to state the corollary - which is that the "Don't Fight the Fed" crowd has probably made the most money during this spell.
And that brings us to today. I have linked mainly to articles on today's SA dealing with the economy; most are negative. (I included the only positive one I could find.) The question for investors, and for advisors, is how to invest in such an environment.
As noted, taking a macro-economic view and sticking with it has generally worked out horrendously for investors. The better approach, it seems to me, is to stick to time-tested principles, the most important of which is diversification.
Here, though, I will quibble with the conventional investment-industry wisdom that diversification means stocks, bonds, REITs, commodities funds, etc., etc. It's not just that these all fell together in 2008, where you'll recall, there was no place to hide. The problem is that the investment industry's recommendations tend to fall within the narrow range of product it has to sell. It doesn't sell land; it doesn't sell cash (money market funds consist mainly of unsecured short-term corporate debt, which may bear quite a bit of risk in a future crisis). In that sense, I think good financial advisors should be happy to see a goodly portion of their clients' assets outside of their management.
Despite today's Bizarro economy, the market may yet continue its march to the heights; but investors - with or without top-notch advisors -- must be sure they have safety nets in place before approaching the cliff.
Please share your thoughts in the comments section.
Here are today's key links:
- David Goldman's got some dispiriting stats showing the pronounced decline of U.S. entrepreneurship (and the jobs they create).
- Indeed, Ian Bezek discusses the possibility that 97% of today's entrepreneurs are fake, and that there is some profitable shorting to be done.
- Charles Hugh Smith offers a psychiatric (and unfavorable) diagnosis of today's market.
- For his part, Gary Gordon argues the market train cannot long continue its advance.
- But wait! Marc Chandler offers a nuanced, even somewhat positive view of the economy.
- William Koldus, CFA suggests advantage in concentrated bets as exemplified by the Longleaf Partners fund family.
- Roger Nusbaum proposes an innovative (and adventurous) way to compensate for insufficient retirement savings.