His May 12th article talks about how the overall effect of Quantitative Easement has been to inflate share prices. Wall Street is doing so much better than the rest of the economy because we are in yet another bubble. The last one used the housing market, and hammered a whole generation of folks whose savings were in their homes. This one is in share prices. We can avoid this one by avoiding the market.
When does it burst? Soon, I suppose. No one knows, of course. All of our self-managed IRA’s will take in the shorts. Typically small and unsophisticated investors, myself included, buy high and sell low.
My advice: support politicians who support you. Punish those who do not.
Typically when the stock market is on a roll, Wall Street via its pocket politicians makes a run at Social Security. The program has been incredibly resilient, withstanding attacks by Reagan, Clinton (bullet barely dodged due to Monica scandal) and Bush – this due to its incredible popularity. So Wall Street’s attack is by stealth, making a run at it when the market is up, weakening it, and lying low during the regular busts. Wall Street wolves are always stalking.
Another part of the stealth attack is to insinuate that the program cannot last, so that most young people assume it will not be there when they retire. But it can easily survive – all we have to do is support it by punishing all who attack the program. It is financially sound right now and into the next few decades, and can be put on permanent solid footing with a few minor adjustments.
Learn the expression “defined benefit pension.” Say these three words to your investment advisor, and watch his eyes dart about nervously as he backs out the door. The private market cannot support DBP’s for any but the wealthiest among us. The rest of us are required to invest in “defined contribution pensions,” or IRA’s that are subject to the boom/bust cycle. Pity the fools who retire when the market is in the bust side of the cycle. They must consume their seed corn and live in constant fear that their money will end before their lives do.
This is the problem with DCP’s – perpetual insecurity.
If you seek investment advice from a professional, some time ask him or her to price a retirement plan for you with the following features:
- First day survivor benefits for minor children;
- Spousal retirement support through end of life;
- Partial income replacement disability benefits;
- And, of course, a defined benefit pension.
Your advisor will laugh, telling you that such a plan would consume all your income. The private market cannot support such a program. Government can. The “defect” of Social Security is that it is funded by intergenerational transfer. It is insurance, and not investment. Yes, it is often a burden for younger people to contribute for the older generation. But it is what sustains us. The market has no similar option, none that we can depend on anyway.
Social Security checks arrive each month for as long as we live. Many don’t live long enough to fully a enjoy the benefits of their lifelong contribution, and that is unfortunate. My brother, who died at 58, never saw a penny. But that is why the program works – DBC’s must have a downside that supports their incredible upside.
In the meantime, follow Keen. He’s not a guru and will not give you any tips. But he is a smart man. Watch the bubble. Know we are in one. There are no bailouts for regular investors in IRA’s and 401K’s. When the market tanks, if you are heavy into shares, so do you. We can only hope to be around long enough for recoveries, as busts are coming now at more frequent intervals, and are hitting us very, very hard. The 2000 and 2008 busts were killers. But we have not fixed the underlying defect, so more await.