We probably don’t have to point this out to our readers, but just in case you missed it, we’re not really in a recovery and we never were.
The article below, from the NY Times, is written in the context of stock market investors, but is still relevant in terms of overall sentiment about the economy:
â€œAt this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity fundsâ€ rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, â€œThis is very unusual.â€
The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americansâ€™ sense of financial security.
It may take many years before it is clear whether this becomes a long-term shift in psychology. After technology and dot-com shares crashed in the early 2000s, for example, investors were quick to re-enter the stock market. Yet bigger economic calamities like the Great Depression affected peopleâ€™s attitudes toward money for decades.
For now, though, mixed economic data is presenting a picture of an economy that is recovering feebly from recession.
â€œFor a lot of ordinary people, the economic recovery does not feel real,â€ said Loren Fox, a senior analyst at Strategic Insight, a New York research and data firm. â€œPeople are not going to rush toward the stock market on a sustained basis until they feel more confident of employment growth and the sustainability of the economic recovery.â€
One investor who has restructured his portfolio is Gary Olsen, 51, from Dallas. Over the past four years, he has adjusted the proportion of his investments from 65 percent equities and 35 percent bonds so that the $1.1 million he has invested is now evenly balanced.
He had worked as a portfolio liquidity manager for the local Federal Home Loan Bank and retired four years ago.
â€œLike everyone, I lostâ€ during the recent market declines, he said. â€œI needed to have a more conservative allocation.â€
First, we’ll note that although Mr. Olsen from Dallas believes he has a diversified portfolio of stocks and bonds, he is essentially waiting to be financially executed.
In What about the gold? we pointed out that there is a distinct possibility that both, stocks and bonds, will be destroyed in the coming financial Armageddon. We suspect that stocks will go first in either a deflationary stock market crash akin to the 1930’s, or, a collapse in real value during a hyperinflationary meltdown (at the same time as bonds). In either case, his stocks will be severely hit.
If he’s holding bonds, he can expect to be wiped out when the US dollar starts getting hammered at some point in the next few years. Yields on the bonds are going to go ballistic, and anyone who is buying now, or bought in the last 24 months, is going to see their bond values decimated or worse. Whether you’re holding Treasury Bonds, Corporate Bonds or municipal bonds, it’s going to get ugly.
It is possible that Mr. Olsen does have some gold stock holdings, but if he took his advice from Gary Schilling, it’s doubtful. Unless he’s holding some commodities in his portfolio, we suspect Mr. Olsen and many like him are going to have a very tough retirement living off of ever-dwindling social security checks.
Second, the reason that the recovery does not feel real for most people is because there is no recovery for real Americans. Sure, the bankers,politicians and mainstream media talking headaches might say we’re in a recovery, but that’s because they haven’t yet lost their jobs, homes and way of life. In the real world, people are hurting by the millions.
We suggest, contrary to the opinion of the New York Times, that the “mixed economic data” is not presenting a picture of a feeble recovery, but rather, a recession that has turned into a depression. It’s a recovery that never was.