Dear Mr. Berko: I sold my Annaly Capital, as you recommended.
So please tell me why you think interest rates and inflation are headed higher. And please explain why you believe the economy won’t have the robust recovery the administration tells us it will. –J.S., Wilmington, N.C.
Dear J.S.: There are two kinds of people I instinctively do not trust: politicians and lawyers.
Frankly, there’s not much of a difference between them. In fact, their skill sets are identical.
Now, with few exceptions, most members of the administration have a law degree, so when the administration comments about most things, my skepticism goes into overdrive.
Still, many folks believe the Fed, Congress and administration are pointing the economy in a positive direction. I hope they are right.
But economic activity is controlled by Wall Street/Big Business. So it can be said that the economy is bridled, saddled and ready to be ridden while a chosen few are booted, spurred and ready to ride.
I‘m often accused of being too cynical. So be it, but my 47 years in this business justify my cynicism.
Early this year, Bill Gross of the prestigious $240 billion Pimco Total Return Fund sold all his Treasuries. BlackRock, the largest money manager on the planet, sold its long-term Treasuries, moving to short-term, and so did Warren Buffet, Allstate, Liberty Mutual, Progressive and other large insurers. Their concern is that an unprecedented spending spree by our 535 noble members of Congress, supported by the myrmidons at the Fed, will force interest rates higher and bond values to fall.
Alliance, Oppenheimer, Hartford and others of near, equal and lesser esteem believe Congress and the Fed are devaluating the currency to pay off future debt with cheaper dollars.
I find it difficult trusting the Fed to do anything right. And many readers know that I often expressed similar concerns about the Fed when Alan “The Mumbler” Greenspan was chairman. Now any fool can plainly see that as the Fed flushes dollars (quantitative easing I, QE II and soon QE III) into an economic toilet without an increase in product, services or demand, the rate of inflation will zoom and push interest rates to double digits.
But the Fed is relying on job growth to drive domestic demand and a devalued dollar to compel foreign demand. So far, only the latter is working, but Europe is metastasizing as the economies of Greece, Portugal, Ireland, Spain, Italy, etc., flounder. The Fed believes that all this QE stuff will generate job growth, give dollars to workers and create demand for new products.
The first caveat is that the vaults of JPMorgan, Goldman Sachs, Bank of America, Citigroup, etc., used this free money to buy stocks and bonds.
The second caveat is that 66 percent of the work force that got pink-slipped and found new jobs are now earning between $9 and $14 per hour, less than half of what they made before.
And the tragedy is that only 15 percent of the workers who lost jobs found new work at the same pay scale as the jobs they lost.
Meanwhile, Lowe’s is laying off 1,700 middle managers, the U.S. Postal Service is letting 7,500 executives go, Walt Disney Studios is releasing half its work force, Pfizer is getting rid of 6,000, Hewlett-Packard is reducing its numbers by 9,000, IBM is laying off thousands, Los Angeles County is giving out 9,000 pink slips and many more high-paying jobs are disappearing.
And while unemployment may be declining, so is the consumer’s disposable income.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org