You may have seen this commercial on television. It is sponsored and paid for by AARP (American Association of Retired Persons). I don’t remember all the details of the commercial… just that it featured a series of senior citizens each imploring the viewer to contact his/her congressional representative for the purpose of making NO changes to Social Security and Medicare. What struck me about the commercial was this stern looking older gentleman at the end of the commercial. He looked at the camera and said, “THAT was the DEAL!” Like, if Congress makes changes to Social Security or Medicare, they are going back on the deal they made with senior citizens 76 years ago. Maybe he didn’t say it quite the way I heard it with that emphasis on the word “DEAL” and the exclamation point. But that’s the way it sounded and my first thought was… “wait a minute. I’m not positive THAT was the DEAL, whatever “THAT” is.”
When Social Security was signed into law by President Roosevelt, I think part of the “DEAL” was that we, the American People, were going to keep smoking cigarettes, eating bad foods and not exercising. We, the American People, were not going to live so many years past the age of 65 that we would bankrupt America. But we, the American People, reneged on that deal. We started paying attention to cholesterol, we started going to the gym and we quit smoking… so more people live additional years past the age of 65. In addition, we have had a dramatic reduction in the incidence of infant mortality (so there are more people who live to age 65) and we have spent billions of dollars on health care solutions that make us live longer than we did in 1935. We reneged on the deal but we expect our government to keep its end of the deal.
Remember when hostesses at almost any restaurant used to ask, “Smoking or non-smoking?” The last time I heard that was several years ago at a restaurant in Detroit. And even Detroit has since passed an ordinance similar to virtually every other civilized metropolis in America.
I frequent one of those mega-gyms four to five times each week. It’s not as big as a Walmart but it seems like it. And it is busy with people of all ages, including a lot of people MY age. I have asked literally hundreds of people who are roughly my age the following question, and 100% of them respond “No.” The question is, “Did your parents ever exercise?” I’m not talking about “mall walking” after retirement. I’m talking about semi-serious exercise during the 40 years prior to retirement. Not one person has hesitated before saying “No.”
Americans live significantly longer than they did in 1935, yet we want the same DEAL that was struck in 1935. And what is even more alarming is that, barring some disastrous plague that “thins the herd,” life expectancies will continue to increase. We will discover, as Greece has discovered, that having a long retirement paid for by “the government” becomes a serious math problem. Not the math problem where a train leaves one city traveling at 50 miles an hour and another train leaves another city traveling at 100 miles an hour. No, this is the one where if you earn $5,000 per month but spend $6,000 per month, how many months will it take before no one will loan you any more money?
So here’s the deal. Unless you are willing to vote for your Congressional Representative when he/she proposes minor tweaks to Social Security and Medicare, then you need to hold up your end of the original deal… buy a carton of cigarettes, some Twinkies and Ho-Ho’s and cancel your membership to the gym.
For months Occupy Wall Street didn’t actually occupy Wall Street. They occupied Zuccotti Park which, I discovered, is near Wall Street and is not really much of a park. About one city block in area, it is concrete with benches and trees. And it used to be littered with tents like Occupy San Francisco, which I visited last month (see November Investment Commentary ¡Toma La Calle!). On the day I visited Occupy Wall Street, instead of tents, it was adorned with a couple hundred of New York’s finest.
Apparently the night before, Mayor Bloomberg ordered a surprise raid, confiscating tents and other camping gear, and made the campers leave. So when I arrived Tuesday, the 15th, Zuccotti Park was ringed by the NYPD. Outside the ring of police was a ring of protesters carrying signs and singing songs. Outside the ring of protesters was a ring of tourists like me getting free entertainment in New York City. At least one protester thinks President Obama should say something. Perhaps the creator of the sign could have been just a tad more specific.
A New York City judge ruled the protesters could return to the park sans tents and camping gear. He reasoned their first amendment rights weren’t jeopardized by the inability to camp out in a public park.
It was all very entertaining. We certainly don’t register this level of “crowd uncertainty” where I live. But it was also rather tame… tame relative to Tunisia, Egypt, Libya and Syria. So be thankful unemployment is 8.6% and not 25% to 35% because Occupy Wall Street is just a tiny little prelude to what citizens do when they feel they are not allowed to earn a paycheck.
Imagine the following. Our federal debt becomes increasingly out of control. Interest rates suddenly rise and the U.S.(which currently borrows at less than 3%) is forced to borrow at 5%… then 6%… and then 7%. Because of this, President Obama voluntarily (more or less) decides to resign, and in his place our government appoints Ben Bernanke… or Paul Krugman… or Milton Friedman.
In other words, our President agrees to give up the throne and, in his place, an economist is appointed to run the country. Far-fetched? This happened last month in Italy.
Italian Prime Minister Silvio Berlusconi (whose dalliances would MORE than qualify him to be a U.S.congressman) stepped down after 17 years. Italy, finding itself on a collision course with the tree Greece ran into, found itself in the position of having to pay over 7% to borrow, vs. less than 4% earlier this year. And although it was not without some opposition from a few political factions, Mario Monti, an economist, was appointed the new Prime Minister.
Appointed. Just like that. No debates with eight other economists every week for a FULL YEAR prior to the appointment. Just appointed. That could happen here, right? I can just see John Boehner saying to Nancy Pelosi, “Hey,Nancy. Obama resigned so we need to appoint a new President. Whaddya say we appoint Ben Bernanke?” “Sure, Johnny. An economist as President? Sounds good to me. Let’s do it!”
Pay attention. Strange things are happening throughout the world this year. And Occupy Wall Street might just be your barometer. If it eventually fizzles and goes away, our economy is gradually improving… or at least is no longer getting worse. If it escalates and becomes Occupy Washington, the economy has deteriorated badly and “crowd uncertainty” will become “crowd ugly.”
And finally, the November stock market really shook the trees. When that happens, the weak investors fall out. Investors’ grips on stocks have become increasingly tenuous over the past few years and November decided to see who was paying attention. After declining 4½% on the last day of October and the first day of November, the market got it all back and then some over the next 10 days… then lost 7½% in two weeks, only to climb all the way back in just three days.
On the last day of November, it was announced that six Central Banks (U.S., Canada, U.K., Japan,Switzerland and the ECB) agreed to provide relief and liquidity to troubled European banks. Stock markets around the world celebrated. The Dow Jones Industrial Average rallied 4¼% and the U.S.equity markets finished the month almost exactly where they started.
The move by the Central Banks does NOT help the various countries which are teetering toward default. It is aimed to assist the banks which own the debt of the countries teetering toward default.
Other reasons to be optimistic:
- Consumer confidence increased
- Black Friday sales were 9% higher than 2010 Black Friday sales
- ISM Manufacturing Index increased significantly
- China cut reserve requirements for banks
- Unemployment declined from 9% to 8.6% (although not an insignificant portion of that decrease was due to people who have given up looking and are no longer counted as unemployed, even though they did NOT get a job).
- And Italy, after appointing an economist as President, immediately began outlining an austerity package which includes tax increases, an increase in retirement age for women in the private sector and tax breaks for companies that boost hiring.
However, housing prices continued to decline and at Boyer & Corporon Wealth Management, until we see some evidence that housing has at least bottomed, we will not get too excited about growth prospects for the U.S.economy. Although the news out of Europe this past week has been positive, we realize that Europe continues to be “the dog” and the U.S.stock market continues to be “the tail.” Daily volatile advances and declines seldom accompany a healthy long-term bull market, and as long as we continue to experience daily roller coaster rides, we will remain cautious.
That’s the DEAL!
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.