The Illusion Of Higher Asset Prices
Today, it seems that most Americans make the mistake of confusing higher asset prices with economic recovery. Stocks are up, housing prices have stabilized (and even increased slightly), so therefore, the economy is rebounding. The problem is that the “real economy” is still in terrible shape. Unemployment (calculated in the modern post 1990 way) is over 10%. Shout all day long at the people in unemployment lines that stocks are up and see what kind of impact it will have.
The problem is that despite our President’s famous promise to “spread the wealth around”, his policies do exactly the opposite. Let’s make this clear, I’m not for socialism. I don’t think government should spread the wealth around. I think they should stay out of the equation altogether. But, Obama and other leader’s current economic policies are inflationary and nothing else, and inflation slaughters the poor that our leaders claim to want to help.
The crazy thing about our country is that being a libertarian that doesn’t believe in government intervention in the economy, people are quick to label me as someone who only cares about the rich. You must be a right wing nut who only cares about “tax cuts for the rich”. This is a huge misconception. My point here is that the rich and elite have you fooled and pointing figures in the wrong direction.
The current (and past) economic policies are inflationary and only benefit the rich. Let’s look at an example: John Doe. John lost his job, has a hefty mortgage payment and little savings. He also has a family to feed. But, John is encouraged because Barack Obama took office and he’s for the little guy! John, however, starts to get discouraged because he hasn’t found a new job. People tell him things are getting better but what does he care about what the Dow is at? He doesn’t own stocks. The real problems settle in when John sees his living expenses rise. Gas is already up slightly and soon food, energy and other costs are going up as well. Somehow the inflationary economic policies that are causing nothing but rising prices (including asset prices) are actually hurting John. If inflation gets serious (which many believe is inevitable), the damage will be severe — imagine $8 gas, spending hundreds on groceries each time, etc. — How do the poor survive that, even with a job that many don’t have?
So who is benefiting? The investor class. The people with assets, and the people less dependent on wages. Their cost of living rises with everyone, but their assets are going up even faster so good days are here again!
Boy, Kevin you sound like a socialist. Far from it. I’m the opposite of a socialist. My point is that, on the whole, the American public is confused about what policies benefit what segments of society. Inflationary economic policies (and rest assured, today’s policies are completely inflationary) do nothing to help the poor and middle class. In fact, they devastate the poor. If government got out of the economy and instituted sound monetary policy, the inflationary game would be over. It would take time to get through a painful restructuring (called a recession), but at least the recovery would be real and not an illusionary game of rising asset prices. Until then, three cheers for the Dow!
The Leading Indicator Argument
Many people who claim to understand the stock market will always use the argument that the stock market is a leading indicator. Therefore, rising stock prices indicate the real economy will recover around the corner. Yes, stocks are typically forward looking. The problem is that flush an economy with liquidity and stocks will rise whether they are seeing a real recovery in the future or not — increase in dollars + constant supply of stocks = higher stock prices regardless of recovery.
Rising asset prices would be a great thing if it were driven by positive fundamentals. A debased currency is not a positive fundamental. There may be some positive developments such as not losing jobs as fast as we did before or even some better than expected earnings (don’t get me started on the analysts and their estimates), but we should see real improvement in the real economy to support a move this big in the stock market. So far, all I see are the typical Wall St. goons making billions based on taxpayer subsidies and more people that I know either lose their job or continue to barely get by even while employed. The real people (people not on Wall St. and not in D.C.) are hardly prospering.
20-somethings should be up in arms over this policy. Most young people don’t really have assets so you get stuck with higher living costs yet get no benefit from rising asset prices. Let’s consider the example of real estate. Government is doing everything possible to prop up real estate prices in the name of “recovery”. Doing this only makes real estate more expensive (artificially) and puts off the date when you can buy your first home. If the market forces were allowed to work, home values would continue dropping (hurting current homeowners), but also making homes more affordable for people who have been diligently saving for a down payment to buy a home. I always am surprised at the people who don’t own a home, and have the goal of owning a home, yet still support the economic policies of today (which make it harder for them to own a home).
Edit 9:45am: Interstingly, Yahoo! Tech Ticket posted a video/article this morning entitled “Best of Times for Wall Street, Worst of Times For American Workers“. Similar themes. Check it out.