Waking up at my usual pre-dawn hour, twelve time zones ahead of New York, I clicked the financial software update button to assess day two’s catastrophic results thanks to the world’s stupidest voters. Honestly, there’s no words that express how I feel after a two-day portfolio decline equal to nine months living expenses. Frustration, anger and disappointment seem like obvious but useless reactions so instead I offer this piece of moronic wisdom written from the lead story about Monday’s market plunge on the Yahoo Finance webpage:
The momentum has continued downward because there continues to be a lot of uncertainty,” said Eric Kuby, chief investment officer at North Star Investment Management; “It’s important to note that it’s orderly. It doesn’t feel panic-inspired.”
Almost making me sympathetic to the wave of populism sweeping the world’s developed nations, I pondered how much this might affect the chief investment officer of any financial company. Or any governor, senator and congressional member. In case you live in a cave and don’t know the answer, try Goggling how many Wall Street bankers responsible for the last round of “paper-loss” poverty are reading this from a jail cell.
Threatening our Experimental Early Retirement, another unexpected financial shock unleashed its ugly head thanks to xenophobic voters happy with being poor as long as there’s no non-white immigration in their country. Serving up a dose of reality to the populist movement, the Brexit vote serves as a wake up call. Thankfully, we’re not in dire straits because of a debt-ridden young couple working in the Bay Area tech industry that paid us 12% over asking price for our modest suburban home last year. (All of our house proceeds are in cash or fixed deposits). But let’s realistically glance at the future. While younger readers have their entire working lives to sack away income, those of us who entered the workforce at the beginning of “The Great Decline” are the real losers. Having done everything the way the pundits told us to, we prepaid our mortgage diligently, maxed out our tax sheltered retirement plans, sacrificed weekend outings in favor of nights at home with DVD’s, and invested diligently. Designing a carefully structured asset allocation plan designed to shelter losses during unforeseen events like the 2008 Financial Crisis, adding another huge setback only eight years later almost makes me mad enough to pull the lever for Trump. But that would mean buying some aprons for my inevitable Wal-Mart greeter job.
Although there’s plenty of things to write about the ramifications of seemingly innocent referendums that create more problems than they solve, the internet is a great source of information and my blog isn’t the right forum for debating the issue. Those smart enough not to vote for isolationism over globalization understand that the 1950’s are gone, immigration is part of life in a world filled with radical fundamentalism that displaces millions and while we all hate the élite douchebags that run the world, voting for demagoguery does absolutely nothing to solve problems. While I’m not a licensed professional, I did spend 30 years working on bond trading desks so I’ll close out the topic with one piece of advice for those non-wealthy middle class average Joes thinking about joining the ranks of early retirement.
From a financial perspective, sinking equity values are not your worst enemy. Declining interest rates are. Unlike 2008, central bankers around the globe spent the weekend assuring us all how they’re ready to step in and provide ample liquidity for the huge volume of selling caused by radicals like Nigel Whats-his-face and billionaires that celebrate catastrophic economic episodes as “victories for those who want their country back”. Here’s a few things to keep in mind if you’re not as adventuresome as us and don’t wish to retire in developing nations with low costs of living:
The Fed and all the rest of the central banks are out of ammunition. Having spent eight years ensuring you don’t make more than a nickel on your hard-earned savings did NOTHING to change the fundamental problems caused by government policies of overspending and borrowing since the 1980’s. Demographics and declining growth in the world’s major economies dictate your future, not immigration policies.
Interest rates are NOT going back to “normalized rates” despite what the financial media wants you to believe. Thinking the always promised interest rate increase will translate into increased rates in your savings and fixed deposit rates is a fantasy unless Congress revokes much of the financial legislation designed to keep your “too big to fail bank” well capitalized.
While most major banks are more solvent than 2008, this simply means they can make some minuscule profits from consumer fees while paying you a few pennies of interest. Since keeping your money in cash is the only guaranteed way of avoiding a coronary every time another unfair financial crisis arises, plan accordingly, especially if your home currency is U.S. Dollars. We can’t outlive our cash any more than you can earning 1.3% but I have yet to see the financial planners changing their “4% withdrawal rule”.
Perhaps less understood but most important, the U.S. economy is the STRONGEST of the world’s major economies despite the declining middle class. Populist supporters vote on emotion and they simply don’t view factual evidence. Granted an economy built mostly on consumer debt isn’t exactly something to be proud of but here’s the reality. Breaking down trade agreements may in fact bring some jobs back to the U.S. but the words of Spock sum it all up:
“The needs of the many outweigh the needs of the few”
Providing a few thousand high paid union jobs in exchange for increased consumer prices on all goods makes no economic sense. Not to mention depleting the economy by forcefully removing 11 million low wage workers that keep your food prices affordable. In only two trading days, Brexit proved what happens when populism wins over the establishment. Hate it if you want (as I do) but understand that the rest of the government isn’t going away even if a lunatic moves into The White House. Built on free market capitalism that needs to function without continuous shocks, our society and your prosperity depends on keeping jobs at home AND in developing countries. While we clearly need an alternative to the two-party gridlock that hijacked every single American’s opportunities, allowing the economy to dismantle itself (and it will) with unqualified leaders bullshitting voters into thinking walls and trade wars are the way to “make us great” is insane.
And the proof is in your portfolio this morning.
Dwelling on the situation won’t help anything so Diane and I ventured out to enjoy one of our favorite unpopular but beautiful parks in Penang. Seeing this post is already kind of long, I’ll share more on that and local fun things to do during Ramadan like attending the nightly break-fast markets later this week.
Cheers from Penang.