Making Cents of Financial Markets - by Jerry Jasinowski
"If you really want to double your money," said Will Rogers, "you should fold it over and put it back in your pocket."
There are truly strange times in financial markets. The S&P 500 has hit a record high, employment is growing and at long last workers' wages are finally going up. What's not to like? Put your money in Wall Street and go back to your nap.
But your nap will be fitful because you know perfectly well the equities markets are defying gravity. We are part of a world economy and that bigger picture does not inspire confidence. The great China expansion is settling down finally, Brazil is dissolving before our eyes, Russia is moving back into the Stone Age, India is hamstrung by backward infrastructure, weak oil prices are impoverishing once-rich nations, and the abrupt departure of Great Britain from the European Union augurs ill for both. Against that backdrop, the United States alone stands out as an island of prosperity.
Unfortunately, that very strength is working against our vital manufacturing sector which remains our primary engine of growth. As the dollar increases in value, we have ever greater difficulty selling our products overseas.
Though real growth is hard to find, we are awash in cash sloshing back and forth like water in the bottom of a leaky boat. The Federal Reserve's risky quantitative easing created trillions of new dollars that are still out there looking for something positive to do. But finding a positive use for money that will generate real return is getting harder and harder.
The traditional alternative to equities is bonds, but it is also becoming increasingly difficult to generate a return on bonds. In Switzerland, for example, which is widely deemed a safe haven for money, every government bond in issue brings a negative yield. You can pay 200 Swiss francs today ($203) to buy a bond that will pay you 96 francs in interest and 100 francs in principal 48 years down the road. What is the point of that? Even hedge fund managers are singing the blues. They are running out of promising turnaround deals. They have squeezed that squeegee dry.
If there is a bright spot in this grim picture it may be that the best way to make money in this environment is not through financial management but rather in focusing on tangible assets and products. For example, it is perfectly clear that real estate, fine art and gold continue to be good asset investments. Then there is always the time-proven expedient of working for a living -- making useful products, creating new businesses and providing useful services to businesses and individuals. Instead of financial instruments, we can put our money in capital investment, improved productivity and more R&D. This offers a viable solution for all those frustrated investors and financial managers out there - to invest in tangible assets and products that enhance productivity and the quality of life. When you stop to think about it, that's how this nation created its wealth in the first place. It worked before and it will work again.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. You can quote from this with attribution. Let me know if you would like to speak with Jerry. July 2016