Permanent QE and Zero interest rates.

Like it or not as we see the economy Quantitative Easing and zero interest rates are here for at least another two years and maybe another 8 years plus if Hillary Clinton wins the Presidency in 2016.   Low rates and QE are not positive for growth nor job creation, but they do offer continuing opportunity for those with assets, notably financial assets, to keep gaining wealth. 

As we have noted before we find the current financially engineered political economy a downer for future prospects of young folks seeking employment and for those employed the hope for annual raises of any quality or job promotion of the type know in the past being non existent.   Economic growth needs business conditions to be competitive and consumers with jobs to make growth happen and push interest rates up.  This is not happening now as evidenced by just this week's housing index where rates moved up just a few basis points and the refinancing mortgage business go bust.  There is little to no inflation or business growth so the Federal Reserve has no impetus to push up their zero rates.  Inflation of course is essential to business growth and the ability to cover expenses as they inch up annually even without payroll inflation. 

Ditto for job growth being dead since the ever recycling of money at zero interest rates and no inflation means all business is doing is making the same profits over and over.  Therefore no need for additional employees and no meaningful raises for those already employed.  Small business is not growing and actually slowly losing profits due to the no growth being non expansive.  Corporations, most notably mega cap corporations, are experiencing the same no growth business scenario. However they have the option of reducing share count with the resulting financially engineered increase in profits via the reduced number of people feeding at the trough.  Small business being closely held does not have that option. Large corporations also can spread the same profits over less shareholders and increase the profits paid to each shareholder. 

Now only fools do not see that if one owns shares in mega and large cap stocks the resulting growth in share value and increasing dividends that actually support those capital gains makes for opportunistic investing.  We were asked just last week if we were 35 years old again would we invest or reinvest profits in a standing small business and the answer was a resounding no, when it was so much easier to sit and collect growing financially engineered politically protected capital gain profits from owning stock in large corporations who can play the Washington DC game and small business can not. 

So unless something changes in Washington DC where we elect leaders that go with growth policies we will continue to invest and reinvest in large caps and sit in our chair on the beach and smile.  Sadly many of those who can not see the difference in a no growth financially engineered political economy and a growth economy when voting will likely be those awaiting our needs at the beach.  Yes, I will take a baked potato and large salad with that steak please.