We have run the table in this no growth economy and unless some new leadership is put in place in Washington DC late this year you will get more of this mess. Voters this is YOUR no growth economy and you can keep it.
Business is not growing except if you are in the drug store business which is booming due to the regulation of Obamacare. Even that business growth is artificial since people needing health care more and more are told to go home take a pill and be quiet since actually doing something to help your health condition costs more than taking a pain pill. Most other businesses are reporting near no growth earnings and of course that means more layoffs than hiring. The only hiring is occurring in the restaurant business, which is low wage and mostly part time due to more of that regulation, where young millennials who are avoiding buying cars and homes are spending on "experiences".
Interest rates for the 10 year US Treasury this morning is in the dumpster at just over 1.5%. Think about that the best you can get for a decade is 1.5%. That means bond investors are willing to take a bet that doubling their money in 48 years is good enough for long term investing. No retirement can be funding with that kind of return and one must have huge piles of money to actually make enough income to live on at 1.5%. Home sales continue to trend lower as only the rich are buying and they mostly with cash. So banks are content to just make the spread between what the Federal Reserve will pay them on deposits and not the better spread they would get lending out for mortgages. This lower demand keeps mortgage rates below 4%.
All this gloom is spreading like a virus over US markets where investors are dumping risk assets like stocks and bonds since fear trumps greed every time. Consumers continue to avoid buying anything that improves their life instead just buying what is absolutely needed such as repairs and staples like food. Gloom breeds malaise and a no growth economy. The end of the ability of high government spending to enhance business since the Federal Government has basically spent out their credit card. The political economy still reigns however in high regulation where if you are one of the lucky industries like drugs stores one can prosper. Crony capitalism is great if you are on the receiving end of the crony. The federal reserve is out of bullets but their continued lower than low rates still makes the mega corporations like Apple and Google richer by the day with the ability to use profits to buy back stock and finance it with lower than 1% 50 year bonds. Like we noted above if you are are on the receiving end of the crony capitalism life is great. Obama continues to make the profits center in Silicon Valley happy. Hillary will continue the same.
Now notice we said "GLOOM", not "DOOM" as this no growth economy will not end in a doom, but a continued gloom. If you like YOUR no growth economy you can keep it and all this gloom too. Smart investors continue to invest in mega cap corporations since their stock is still advancing about 3% to 4% due to all those stock buybacks and reward the rich with a steady diet of dividends. For example Cisco just upped their buyback by $15 billion yesterday and upped the dividend by 25%. Smart investors still look at municipal bonds too which can pay upwards of 6.5% tax free, which is about 8.6% in the federal 25% tax bracket. We bought big into Invesco Municipal Trust in early January and as of now have a 3.2% gain in our buy. That is over 25% if continued annually. We continue to look at closed end bond funds for gains and income since rates are going nowhere keeping our capital safe and adding to mega cap stocks for protection against any inflation that might appear.
We hope Americans will come to their senses and put in place in November some pro-growth leadership. Jobs, business growth, and the lifting of the gloom make for a much more enjoyable environment. If not we will remain happy with taking advantage of the crony capitalism.
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