The Roulette Wheel Doesn't Have Your Number

Small investors have pulled 33 billion from the stock market so far this year when you would normally expect at this point in the “recovery” to have 10 to 20 billion flowing in. Where is the money going? Some of it simply doesn’t exist anymore as many in the middle class have stopped being middle class but much of it has been shifted into Treasury bonds driving the prices up and yields down.

Stock market salesman (oh I meant financial advisors) are pointing out that some blue chip stocks are paying bigger dividends than the return on bonds. They don’t mention that dividends can dry up overnight at the whim of corporate CEO’s who put their own paycheck at the top of the “to do” list and paying your dividends at the very bottom.  Your investment can also evaporate with the next flash crash and take decades to “recover” not counting inflation and if you are in managed fund, it can disappear completely.

Bonds are not without their own risks. The bond market appears headed for its own bubble and while your investment is relatively safe in that the literal default of the US government is generally believed to be unlikely.  The problem is that they pay in USD and the dollar’s value is subject to hyper inflation that could make bonds in reality not worth much at all. China has been taking advantage of the bullish bond market to unload US debt, selling more than 3% of its US Treasury holdings May and a similar amount in June.

I do often refer to deflation which in theory would make bonds a great bet but the problem is that there is such a huge amount of Treasury debt, that there is no way that the casino could pay off. You can have hyper inflation of prices and deflation of assets at the same time, in the seventies they called this sort of thing stagflation.

Basically it’s all a rigged game to separate the middle class from its wealth and redistribute it to the top one tenth of one percent. There is no way to out-smart the system, the wheel will never stop on your number. Even putting all your money into gold won’t protect you, although I’m not opposed to owning some if you don’t have room for anymore canned goods.

Oh, and eight more banks failed on Friday, the FDIC said early in the year that they expected the peak in failures would come in the third quarter. There are about 2000 banks that are on shaky ground so the peak isn’t anywhere in sight. It’s commercial loans dragging these banks under and not mortgages. Small business is still in full decline, none of the policies of the last thirty years have been changed and if the neo-austerity that is being contemplated in Washington comes to pass, the work of Ronald Reagan will be complete. That pesky middle class who thinks they should live the American Dream will become extinct once and for all.    www.prairie2.com