Jonathan Clements sums up what’s wrong with Wall Street in the Era of Cheap Money:
The long rally has done wonders for my portfolio’s value. But it also means stocks are now more richly valued—and expected returns are lower. Unless you never again plan to add to your stock portfolio, you should have mixed feelings about the market’s heady gains.
Think about all the money you’ll invest in stocks in the years ahead, whether it’s with new savings, reinvested dividends or by shifting money from elsewhere in your portfolio. Wouldn’t you rather buy at 2009 prices than at today’s nosebleed valuations?
Indeed, I find it hard to get enthused about the prospects for U.S. stocks over the next 10 years.
Two things, one more serious and the other less so.
The first is that we’re caught in the tangled web of the New Trickledown. In the old trickledown economics, regulations were eased, top marginal tax rates were cut, and inflation was curbed in order to get business expanding (or entrepreneurs to entrepreneur-ate) and hiring workers. Accelerated depreciation was another part of the deal, so that many of those new jobs would be in high-paying technical and manufacturing fields. The “trickledown” was the wealthy creating new wealth to benefit those who had been jobless, and the entrepreneurs making themselves and their partners rich, too. It wasn’t a 100% success, but the Reagan years sure beat the crap out of the Nixon-Carter mess.
The New Trickledown works like this: Big fat government sits its big fat bottom on the economy’s face, smothering it with scads of new regulations, insurance schemes, taxes, fees, and all the rest. However, the Fed keeps the printing presses going to inflate the equities markets so that the rich can keep on spending, thus generating jobs in the low-paying retail and food service industries. For the unlucky millions who can’t find even crappy jobs, Congress keeps the welfare teats fully plumped. The middle class has had the door shut on them by the New Rich, and is having the floor cut out from under them by the Permanent Poor.
Everything the Left unjustly accused Reaganomics of being, is exactly what they’ve foisted on us in the last six years.
My second point is even wearier. Clements details only some of the pains we’re going to have to suffer to get out from under Big Fat Government while at the same time weaning ourselves off our addiction to cheap money. So whether the next President is a Democrat or a Republican, I pity the fool who gets sworn in on January 20, 2017.