Feasting on Our Prosperity

The optimists look at the markets and see wonderful things. Housing prices are rising. Stock prices are rising. Bond prices are rising. What's not to like? Everyone wins.

This is what I see.

December 16, 2015
The Fed's rate hike...in 2 minutes

5. Savers will finally make a little money: If you put money in your savings account, you will slowly start to earn interest over the next couple years as rates start climbing higher. Savers haven't earned any interest since 2008.

On that day, the 30-year inflation protected treasury bond yielded 1.34%. Today it yields just 0.78%. In the eyes of the bond market, there will be no future harvest for savers. The seed corn is continually being eaten.

We can prove this is true for treasury bonds. After taxes, a 30-year TIPS will not provide much real growth going forward, if any. We can't prove if it is true of housing and stocks. However, when there is a fat man gorging on steak at your dinner table, one might assume that he's also planning to gorge on the mashed potatoes and cheesecake, if he hasn't already.

So what do you do? You've got a choice. You can take the moral high ground and hope there will be some cheesecake left for you, or you can try to eat a bit faster.

The fat man has the advantage though. While he's gorging on cheesecake, he'll be telling you how to cheesecake-cost-average into the dessert. You know, take small bites every few minutes just in case better cheesecake magically appears.

When I see a bargain I never dollar-cost-average. I don't say to myself, "Hey, Coca-Cola is on sale. 4 12-packs for $11! Perhaps I should dollar-cost-average instead of backing up the truck." So why should I do it with my investments? Perhaps if I don't trust an investment to meet my needs or trust that an investment actually is a bargain, then I shouldn't be buying that investment in the first place. Just a theory.

The TIPS and I-Bonds I purchased in the past will more than likely meet my modest needs. That's good enough for me. Those who "need" 8% returns from real estate and/or stocks from here will more than likely be sadly disappointed. The fat man's been gorging on the seed corn. In other words, it's getting harder and harder to make easy money off of easy money.

This has definitely not been an environment that has rewarded procrastination. If you've been sitting on the sidelines for 7 years, watching your seed corn being eaten, then you're kind of out of luck now. Much of it is gone. Sorry about that. :(

This is not investment advice.