How the Stock Market Doubled

Posted on February 10, 2012 by MN Gordon

Things keep on moving forward as they must.  Some things seem obvious and predictable…like Greek insolvency.  Others, like the escalating potential for an attack on Iran, are just coming into focus.  Still, what we see, and what we know, is just the half of it…

Also lurking out there are what Donald Rumsfeld once called “unknown unknowns.”  These are the things we do not know we don’t know.  We’d give you an example of one, if we could.  But we can’t.  Because then, by definition, it would not be an unknown unknown.

Nonetheless, once something passes from the unknown to the known it must be discerned, processed, and acted upon.  Confounding things is all the noise out there…which can distract and confuse even the most focused and clear thinking individuals.  Where the stock market’s concerned, what’s the lowly working stiff saving for retirement to do?

One option to consider is doing nothing.  Doing nothing, however, is a decision to do something.

Putting money in a savings account is taking a position in the banking system.  Stuffing physical cash in the mattress is shorting inflation. Continue reading →

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Credit Market Killing Machine

Posted on February 7, 2012 by MN Gordon

Yields on the 10-Year Treasury Note remain below 2 percent.  Interest rates this low are extraordinarily abnormal.  They indicate credit markets are feeble.  Moreover, despite the Feds efforts to suppress interest rates, these ultra-low yields may be hurting the economy rather than stimulating it.

How did we get here?  Let’s explore…

“Where does credit go when it dies?” asks Bong King Bill Gross in his latest Investment Outlook.

“It delevers, it slows and inhibits economic growth,” says Gross, “and it turns economic theory upside down, ultimately challenging the wisdom of policymakers.”

The critical insight that Gross offers in this article is that once economic policy has forced interest rates to become zero-bound, low interest rates no longer stimulate economic growth; rather, they discourage it.  In short, when credit markets do not offer a reward that’s worthy of the risk, lenders take their money elsewhere.

Obviously, this can have negative consequences on the economy… Continue reading →

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How to Spot a Stock Market Inflection Point

Posted on February 3, 2012 by MN Gordon

Saving for retirement these days is a tall order.  It certainly hasn’t been like the good old days during the 1980s and 90s when you could blindly dollar cost average into a no load index fund and watch it rise 15 percent each year.  Those days are long gone.

Nowadays, with yields on the 10-Year Treasury Note perpetually stuck below 2 percent and the S&P 500 down from where it was at the turn of the new millennium, growing a tiny grubstake into something you can live off of has proven to be near impossible.  Still, you must try.  Moreover, what’s your alternative?

Social Security’s bankrupt, pension funds are broke, and, according to the Bureau of Labor Statistics’ inflation calculator, the dollar’s lost 23 percent over the last decade.  This means you must work harder, save more, and invest better than ever before…all for less in return.  In fact, just keeping pace with inflation is difficult enough – let alone actually building wealth.

Nonetheless, here at the Economic Prism we are not discouraged.  We welcome a good challenge like we welcome the silence before dawn. Continue reading →

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Davos Hootenanny and Salvation Call

Posted on January 31, 2012 by MN Gordon

Despite the reformers endless efforts to encircle mankind, some persist beyond the broad extent of their casted net.  In the backwaters of the Republic, for instance, the distant rumble and flicker of Saturday night hootenannies still befall yonder the mighty oak groves.  In defiance of all things good and proper, the unconsecrated gather under the pale moonlight and jig step to zydeco washboard rhythms while downing tipples of corn syrup and fermented grain.

These knees-ups certify that, even in this era of big government, there remain places in the lower forty-eight where freedom reigns.  Across the planet, no doubt, there are pockets of liberty where individuals can use whatever light bulb they want without fear of the pokey.

These places are uniquely exceptional with their own distinct rhyme.  But, in common, they’re all places where the air smells sweet, the water flows clean, and the people can hold their chin up.

Similarly, the backwoods of the old world, rare as they may be, have not been entirely defamed. Continue reading →

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