Unsolicited Advice to Fed Chair Powell

American businesses over the past decade have taken a most unsettling turn.  According to research from the Securities Industry and Financial Markets Association, as of November 2018, nonfinancial corporate debt has grown to more than $9.1 trillion.

What is the significance of $9.1 trillion?  And what are its looming repercussions?  Here, for your edification, we’ll take a moment to properly characterize this number.

For one, nonfinancial corporate debt of $9.1 trillion is nearly half of real U.S. gross domestic product.  Hence, the realization of profits by private businesses has required a substantial accumulation of debt.  And this debt, like much of today’s outstanding debt, is shaping up to be reckoned at the worst possible time.

Remember, corporate debt, where the debt is increasing faster than profits, is like a plucked tomato sitting on a store shelf.  It goes bad with little notice.  Frank Holmes, by way of Forbes, offers the grim particulars: Continue reading

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As the Madness Turns

The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you…a 1.3 percent raise is effectively nothing.

By comparison, the U.S. budget deficit for fiscal year 2019 is estimated to hit roughly $1.1 trillion.  This amounts to an approximate 5 percent increase of the current $22.2 trillion national debt.  In other words, government debt is increasing about 3.85 times faster than nominal GDP, which is about $21 trillion.

These two metrics offer a rough perspective on the state of the economy.  Deficit spending is grossly outpacing economic growth.  Heavy treatments of fiscal stimulus are being applied.  Yet the economy’s practically running in place.  In short, the state of the economy is not well. Continue reading

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How to Escape Like Willie Boy

The America we thought we knew – the country we learned about in grade school – vanished long ago.  In truth, it was gone well before we stepped foot in our first classroom.  But America’s myths and legends remain.

The myth that America makes the world safe for democracy.  The legend that the role of free press in America is to hold government accountable.  The myth that the U.S. Constitution is the supreme law of the land.  The legend that the Fed maintains stable prices.  And on and on…

Preserving America’s myths and legends has become risky business in the 21st century.  Risky in the sense that it propels America towards a great geopolitical conflict.  So, too, it puts hardworking Americans – and an army of shirkers – in the crosshairs of an epic financial crackup.

How to save and invest for a tomorrow that’s far different from today is an extraordinary challenge.  We can’t say for certain.  But we venture a guess that buying and holding an S&P 500 index fund over the next 30 years won’t cut it. Continue reading

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Is Inflation Beginning? Are You Ready?

“Those who cannot remember the past are condemned to repeat it,” remarked George Santayana over 100 years ago.  These words, as strung together in this sequence, certainly sound good.  But how to render them to actionable advice is less certain.

Aren’t some facets of the past – like the floppy disk – not worth remembering?  And aren’t others – like a first taste of romance – worth repeating…if only it were possible?

Where investing’s concerned, remembering the past – and discerning what to make of it – can actually be a handicap.  Where does the past begin?  How does it influence the future?  How does one invest their capital accordingly?

These are today’s questions.  What follows, with purpose and intent, is an attempt to scratch out an answer.  Where to begin?

Many investment gurus in the early 1980s were predicting the future while projecting the past.  After a decade of raging price inflation, the popular dogma was to pack one’s portfolio with gold coins, fine art, and antiques.  This was the proven, surefire way to preserve one’s hard earned wealth. Continue reading

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