Hope Has Changed — It Died

hopeless-13552Hope is dying in the US.

The performance of financial markets affects everyone. For savers and investors, these markets represent the means to an improved life, at least as they define it. Savings and wealth provide options and opportunities, the quintessential aspect of being an American. These options and opportunities differentiated an American from someone who was born and destined to die in a hut or remain locked in a societal class from which there was no hope of escape.

Bonds and stocks were the primary means for savings and investments for generations of Americans. When these do not perform up to expectations, lives are changed. Plans and dreams are dashed. College educations, retirements and similar major events are deferred or never happen.

We are twelve years into this new century and Americans are losing their hopes, dreams and aspirations. Hard reality has crushed the optimistic spirit that once drove the country. The first decade rivaled the 1930s in terms of stock market performance. Twice, stock market wealth was halved in this ten-year period. Twelve years in, the S&P 500 has returned a total of 14%. That puny return has not come close to covering the decline in purchasing power of the dollar during the same period. Worse, a generation or two, has lost probably 33% of their wealth-producing years. 

College graduates come out of school under-educated and buried in debt. Most cannot find a job commensurate with their education or aspirations. Taxes rise and will accelerate in the future as the federal debt and social promises become more binding. Young people find it difficult to imagine getting out from underneath their student loans or buying a home. 

Outcomes in the housing and stock markets have affected millions. Equity in homes has dropped dramatically. Some have lost their homes as a result. Savings and wealth that were reasonably expected based on historical precedents did not materialize. 

These outcomes are explained away in terms of markets "underperforming." To speak of housing and stocks as if they are independent entities that suddenly somehow turn bad is to miss what is really happening. Markets" are nothing more than millions of us making individual decisions intended to improve our lives. Markets do not under or overperform. It is people, the millions of buyers and sellers, that drive markets. When markets "underperform" it is because people have "underperformed" or more properly, bought less common stock or fewer homes.

People are acquisitative by nature, wanting more rather than less. When they "underperform" in terms of purchasing decisions it is because they had to. Unlike the federal government, people cannot print money or spend beyond their means, at least for extended periods of time. Eventually they hit budget constraints. That is what is being reflected in stock prices and home values. They are reflecting the lower standard of living of the country.

The feel-good spending of the prior two decades caught up with the American consumer. He was never as rich as he believed. Now, as a result of having to service this debt binge, he is poorer than he should be. That is why markets are underperforming. That and the fact that fewer people have jobs. 

A recent article, "You Haven't Made Any Money In The Stock Market This Century," struck a nerve with some readers. Reader Chugar submitted comments that expressed the general sentiment of many (my emboldening added):

I am still in the stock market and hate it daily.

The feeling of it being a wise investment left long ago. I watch the flash crashes, read about HFT, the endless blabber on business shows about "buying opportunities" have grown old.

Since all these talking heads have a vested interest in keeping the game going, if we aren't buying their products they make no commission or their advertisers are not kept happy. It isn't hard to figure out.

With that said we are trapped, for my working career I was told, buy and hold, dump money into the 401k/457/ROTH or Traditional IRA. Not to mention an underfunded pension, which may run out of money before I can even draw.

I lost track of firms and brokerage firms over the years who not only had ethical problems but legal problems. So much for confidence in what appears to be a grand scam run by well-dressed crooks.

My local credit is advertising a 3 year CD for 0.7%……Thanks ZIRP and Mr. Bernanke

I was just reminded I never really own my home with a year end property tax bill.

Taxation,user fees, access fees on and on are coming our way to finance a government that will never get enough, whether its local,state or federal.

Its criminal what is taking place in this country.

The frustration and anger is apparent in these comments. It should be. When one thinks about what has happened, it is difficult not to become angry. The stock market is not the problem. It is merely a scorecard that reflects what is happening to the country. Here are but a few of the factors:

  • Freedom as a concept is praised, while government actions designed to reduce it for ordinary citizens continue.
  • Working longer and harder produces less wealth than was possible for your parents.
  • Living standards will be less for your children and grandchildren than they were for you.
  • Leisure (going on the dole) is now a choice unaccompanied by either shame or hardship.
  • Politicians have made dependency a tool to gain votes and power.
  • As freedom decreases, government becomes increasingly more violent in order to achieve the behavior it demands.
  • Laws are enforced selectively in favor of the political class and their cronies. No bigger rape of justice has ever been committed than the unwillingness to prosecute the banksters, regulators and legislators  responsible for the looting of taxpayers.
  • Government lies with impunity with respect to the true condition of the country. This behavior is obvious with respect to economic statistics but also spills over into all other areas, like personnel decisions.
  • Cover-ups like "Fast and Furious" and Benghazi are ignored by a corrupt and compliant media. Lesser problems (Watergate) were cause for removing a president in simpler more honest times.
  • Government's insatiable spending has decimated the private sector economy. Capital and talent increasingly flee to other countries to avoid economic persecution.
  • Eventually this spending will cause much of the economy and all of the government to collapse. Massive debt defaults, impoverishment and social unrest lie ahead.
  • The phrase "government ethics" is little more than a comedian's tool for generating laughter.
  • The Mafia has far better ethics. It treats its customers better than government. The key word is "customer" which they must attract. Government does not have customers; it has "slaves." That is how government views private enterprice. 
  • Compare the payouts on illegal gambling to those of government sanctioned lotteries for a simple comparison between the two methods of organized crime. You do much better dealing with the Mafia.

The country's financial condition is deplorable and cannot continue much longer. So, too is virtually everything else the government has touched whether it be education, Amtrak, the post office, Social Security, Medicare, ad nauseum. Nothing government has done has not been a Ponzi scheme dependent upon additional theft from taxpayers to keep going.

The system is now broken. There is no one to blame for this other than government. Despite this obvious conclusion, government is still seen to be a savior by a large proportion of the country.

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7 Comments

  1. I don't understand this article. The stock market has come back strongly. Everything is looking up now. I see construction and new ventures everywhere. Restaurants and movie theatres are full. Everybody has an iphone, etc. I don't see anyone suffering. No one is even complaining (well except for me because I thought the stock market was going down again.) I don't mean to be insensitive, but I see more economic activity now than ever. What am I missing?

    1. Anonymous,

      Nor do I mean to be insensitive, but I would suggest that what you are missing is eyeglasses. The stock market is up recently but that is not a good indicator of economic activity. Often it diverges from underlying economic conditions, most often as a result of excess liquidity in the system. Regardless, for every $100 you invested in the market in 2000, more than 12 years ago, you now have $120. You have not received a reasonable return. When taking account of inflation, you have lost money. If you want to see some real good percentage gains (and losses), look at the 1930s. Or look at Japan over the last couple of decades. There have been many 20 – 40% gains in that market. Yet, it is still off 75% from its highs. 

      I would be very careful going forward. Things are not what (you believe) they appear to be. Sorry to be such a pessimist.

    2. Anomyous, you asked what you are missing. You are missing (1) the activities of the exchange stabilization fund (google it), (2) the activities of the plunge protection team (google it), and (3) your share of the national debt, at least $16 trillion, and if one uses generally accepted accounting principles, perhaps $100 trillion. I know you think the national debt is a joke, and that the tooth fairy will take care of it, but you are wrong. It is real. You owe it. You will pay. You are no longer on the road to serfdom, you have arrived.

  2. The Founders recognized the potential problem discussed here but arranged a system- a Republic- in which the responsibility for keeping the government in check rested with the citizens themselves. They knew the success or failure of a Republic rested primarily on the principles of morality and love of Liberty. Those who fought and sacrificed much to gain our independence from England certainly loved Liberty more than life itself. No more. The character of the American citized has died a death of a thousand cuts over our 200+ year history. And the dependent sheeple who now sway elections are proof of Franklin's warning that, "Only a virtuous people are capable of freedom."

    That the system is now broken is apparent to anyone who cares to look behind the facade. But like the advertisers on TV who visually give the viewer exactly what motivates him to make a purchase, our government does exactly what panders to the values of a depraved citizenry. Blame neither the advertiser for his work nor the government which has been allowed- no, encouraged- to morph into its current repugnant form.

    1. In a republic, the franchise is limited to those with “skin in the game”, by property qualification, tax payer status, or poll tax, etc. The US republic was destroyed in the 1960s. Now we have democracy – the most vile form of government. Unless we can reestablish “No representation without taxation”, we are finished.

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