Bread and Circuses

Your retirement plans are impacted by political events more than at any time in history. Are you prepared?

I am blessed to have the opportunity to speak on important issues of the day – often when I am asked to appear on major television news networks. Each time the subject seems so far from my day job – “wealth management and retirement planning.” The host always seems to be asking my opinion on this or that war, oil prices, the federal reserve, employment legislation, budget deficits, you name it. Maybe it’s not a good use of time, why bother with doing the research, funding a research staff, or even bother with going on these shows. I have better things to spend my time on, right?

As it turns out, more than at any time in our history, political, fiscal and monetary decisions are impacting your money, the value of your dollar, and in many cases the very ability to get and keep a job. And in case you are wondering, I do not believe these events, happening today, are a good thing.

I chose “Bread and Circuses” as the title of this blog because it aptly describes our circumstance. Please forgive the rhetorical flourish. It means basically being given handouts in sustenance and entertainment, primarily from the government, so that the masses won’t realize the level of decline they are in. It originated from the Roman poet Juvenal in his Satire X, where he describes the delivery of panem et circenses by the Roman politicians as a means to get votes. (For my clients at or near retirement, you probably remember the phrase more from Captain Kirk and the 1968 Star Trek episode by the same name, but I digress).

Ben Bernanke, Chairman of the Federal Reserve, recently announced Operation Twist – a plan to swap the Fed’s short-term Treasuries for long-term. The stock market collapsed upon the announcement. This will not fix the economy, and in fact, will damage those that rely on long-term interest rates to be higher than their current rock-bottom rates. That includes savers and those holding FDIC insurance products, as well as long term Treasury Bonds. Basically – everyone trying to prepare for retirement.

The “Bread” that the government is handing out actually doesn’t work. You cannot have this type of government intervention in to the marketplace and somehow help your long-term financial interests. It’s not that it won’t work this time, or that you want to be mean to the President, it is simply that it has never worked! Economists with fancy titles and who write for newspapers may have to believe their theories, but a lot of people thought the Earth was flat long after the evidence suggested otherwise.

The “Bread,” these government hand-out’s, come in many forms: bank bailouts, government loans for green energy, government regulations which protect certain industries. The government telling the marketplace what to do and how to do it is nothing new, and neither are the results – always bad.

Now I know many people say this is the fault of both parties, and in fact the last government we had under a Republican administration gave us much of the debt mess that we are in right now. I would agree that many people within both parties are responsible for the financial and debt situation we find ourselves in, but there are degrees of responsibility. I don’t think we punish the child who steals from the cookie jar the same as the mass murderer. We have politically traded in the amateur government spenders for the professional government spenders. Hopefully, the 2010 elections helped steer us towards a saner fiscal path, but that remains to be seen.

Besides, it doesn’t matter that political parties can be held responsible for our circumstance (because ultimately we are at fault for electing them). What matters is the philosophy that government should be involved in the first place. Every one of our fiscal problems starts with government involvement as the predicate.

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The “Circuses” is not Congress and the White House, although that description would not be incorrect. I am referring to our popular culture. Although not directly provided by the government itself (they would not have the talent or the means to do so). Can you imagine the bureaucracy that would be needed to bring us a “Monday Night Football,” or The X Factor?” I can’t help but laugh at the idea as I am typing this blog!

But nonetheless, our addiction to popular culture has left a society that may be ill-prepared to handle the depth and scope of the issues that we must vote on. In Roman times, it was the Gladiator in the arena. Today? MMA and UFC (my own personal favorites).

So many quotes can be attributed to Thomas Jefferson in regards to education and liberty, one of his more famous being: “Whenever the people are well-informed, they can be trusted with their own government.” And what would be the converse of this quote? I would imagine that if the people are NOT well informed, they should not be trusted with their own government.

I know much of what you see on TV is politicians yelling over one another. Many times, they all sound the same, other times each side will parrot the same lines you have heard for years. But in your gut, regardless of your personal circumstance, you know what has made us great, what gives opportunity even when you feel the opportunities are few. Being free to succeed or fail, being free to enter the marketplace, being free from the government making decisions which affect your money – in your gut you know the American philosophy of being free is your best chance at claiming success, keeping your success, or over-coming failure.

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Today, events you cannot control directly affect your money. Chinese naval vessels threatening Indian trawlers can affect the price of fish in St. Louis. Greek debt can affect the stock price of a US bank. And a US government incapable of properly paying its bills is devaluing your dollar bill, their regulations are negatively impacting your employment, and the lack of leadership is crippling our market environment.

Ultimately, America is the Shining City on a Hill. We can fix our problems through the ballot box. It will include some pain. But if we act now, and if we force our politicians to take the medicine first, I believe the pain can be minimal and not long-lasting. If we delay, and if we let the politicians dictate the terms, it could be painful for everyone and possibly irreversible. Each American must revisit their individualism, take their own personal responsibility. And if you don’t believe in personal responsibility, if you believe in the very un-American view that it takes a village, fine. Then appeal to your own local village for help, not the taxpayer. America can’t afford it.

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Control what you can control. Every day I advise people that there are better ways to protect their retirement money. You can go up with the stock market, lock in that gain, and then not go back down when the market retreats. It is not too good to be true – there are always catches. But the catches are time and a maximum gain. You can find a solution to the risk that the global marketplace, and our own government, puts on your retirement. I provide protection for my clients every day.

The Influences and Meaning of Labor Day

Like almost all American holidays, Labor Day has become mostly a day off from work, and a chance to grill out for the last time as summer concludes. Whether it’s playing in the swimming pool, bike riding, or playing sports with your kids, Labor Day is usually not filled with too much labor, and has become the traditional recognition of the start of the fall season.

The day’s history is reflected in the advent of the labor movement within Western economies. It is traced back to 1872 in Canada, where a parade was staged to recognize the striking Toronto Typographical Union. The American Federation of Labor, the precursor to today’s AFL-CIO, joined the Knights of Labor in New York to form a similar parade in September of 1882.

The law creating Labor Day as an official holiday of the United States was signed by President Grover Cleveland in 1894. President Cleveland was responding to wide-spread public outrage over the military’s handling of the infamous “Pullman Strike.” The Pullman Strike was where workers in Pullman, IL were striking against railroad company reductions in their hours and pay. The owners of the railways saw a significant reduction in their profits from the “Panic of 1893,” considered the worst economic Depression in US history to date. Many consider the results of the Panic of 1893 as being worse than the Great Depression which started in 1929.

There is so much to this history which is salient for the armchair historian. The strike was actually led by Eugene Debs, who would later become the famous American Socialist leader. Ironically, Debs was not a socialist before the strike, but his political beliefs evolved after he was tried and convicted of charges connected to the Pullman Strike (his lawyer was another infamous name from history – Clarence Darrow, of Scopes Monkey Trial fame). It was thereafter that Debs’s claimed he became a socialist, blaming the government as being under the control of the corporatists and robber barons, and whose use of force against the people was unjustified.

President Cleveland sent US Marshall’s and 12,000-plus members of the Army to break the strike up, and order everyone back to work. 13 workers were killed when the military opened fire, 57 were wounded, and over $8 million dollars (in today’s dollars) of damage was done to the railway construction factory.

And thus Labor Day was born.

So what does this mean for my clients and for today’s investor? For one, Labor Day is a nice day to have with family and perhaps commemorate those who fought for the rights of the worker, but the worker is hardly in need of the labor movement today. All workers enjoy laws which protect them in the workplace, which provide disability and medical security, which provide standards for wage and hourly income. The notion that the same risks to employment and labor exist today as they did over 100 years ago is silly to the extreme.

Second, the disparate impact labor holds over our politics is, ironically, one of the many reasons preventing an economic expansion today. Labor influences Democratic politics and policy making. Their demands in the public sector as well as the economy at large are creating an extraordinary strain on the ability for the country to expand employment. Business will not hire because of regulatory and tax uncertainty. Without business expansion, you can’t get a job, and it also stifles wage elevation – since the worker becomes more productive and the employer does not have pressure of hiring others for the same amount of work being done. It negatively impacts the investment community as well, since your portfolio may be tied to industries which simply cannot grow, and therefore their stock value stagnates or declines.

Ty J. Young clients have historically been immune to economic downturns, since our investment strategy has primarily focused on protected principal investments. Our clients benefit from economic growth if it lifts the stock market, while not suffering through the inevitable stock market declines. All of us, however, are suffering from a stagnant economy, and without significant pro-growth policies from our government, which means in many cases simply getting out of the way, our next Labor Day may not see much improvement from where we are standing now. However, if we advanced a pro-America energy policy, for example, we could substantially expand blue-collar labor employment (which statistically is suffering the greatest loss of jobs during the past 3 years). The Keystone XL pipeline is an example of one of many projects in the energy industry that remains blocked by our current government from being constructed. The jobs multiplier of labor employment, begets real estate sales, begets service sector support for where those jobs are created, could serve as the next decade’s growth model. We have enjoyed the strong dollar, low tax era of the 1980’s. It was followed by the internet expansion of the 1990’s. The 2000’s, contrary to our media, expanded employment and maintained reasonable economic growth on the backs of the housing industry. But unlike each previous downturn in the business cycle, the 2000’s ended with a government which doubled down on the debt policies it claimed it would correct, and who has added an assault on employment through current and future regulation.

Stagnancy is a choice. Decline is a choice. As I advise my clients to pursue a strategy which can grow with the market, but be protected from the losses, I would also advise my readers to recognize Labor Day for what it is: a time for family, a time to reflect on a movement which protected the 19th century worker, but a Holiday with little connection to the real world needs of a modern 21st century economy.