The Motley Monk fave, John Mauldin, has come out with yet another excellent discussion in his Outside the Box newsletter, this one providing a rather disconcerning answer to the important question: "How is one to create a retirement portfolio in these uncertain economic times?"
The answer: "Who's to know?"
And here's why.
Many had predicted that the "Dodd-Frank Wall Street Reform and Consumer Protection Act"--which mandated changes to the American financial regulatory environment that would impact all federal financial regulatory agencies and almost every part of the nation's financial services industry--was nothing more than a way for the federal government to extend its regulatory arm further and more deeply into the free market, keeping financiers and bankers from doing what they do best: finance businesses as well as Joe and Josephine Average.
But, those prognosticating this outcome were accused of trying to aid, abet, and protect the "out-of-control" Wall Street financiers and banks. Moreover, those prognosticators were accused of making judgments based solely upon hypotheticals. "You're afraid of Dodd-Frank because it's going to bring real reform to those greedy capitalists who almost brought down the global economy," it was said of those prognosticators. "No more bailouts! Read my lips: No more bailouts!"
Well, lo and behold, Mauldin presents the research of bond guru Chris Whalen and guess what? The data support the prognosticators' hypothesis.
"Reform" has resulted in what Mauldin calls "unprecedented financial repression." Worse yet, who do those "reforms" impact most? Not those exploitive, fat-cat Wall Street financiers and bankers who nearly pushed the global economy over the cliff. No siree. Their salaries, commissions, and year-end bonuses are good as ever, if not better than they were prior to the Great Debacle of 2008. No, Dodd-Frank hurts those who can least afford it--retirees and pensioners.
How so?
Whalens' graph demonstrates that the cost of funds for US banks has dropped ~$90B since the financial crisis. But, note that net income to US banks has risen almost the same amount. Examine Whalens' graph carefully:
The answer: "Who's to know?"
And here's why.
Many had predicted that the "Dodd-Frank Wall Street Reform and Consumer Protection Act"--which mandated changes to the American financial regulatory environment that would impact all federal financial regulatory agencies and almost every part of the nation's financial services industry--was nothing more than a way for the federal government to extend its regulatory arm further and more deeply into the free market, keeping financiers and bankers from doing what they do best: finance businesses as well as Joe and Josephine Average.
But, those prognosticating this outcome were accused of trying to aid, abet, and protect the "out-of-control" Wall Street financiers and banks. Moreover, those prognosticators were accused of making judgments based solely upon hypotheticals. "You're afraid of Dodd-Frank because it's going to bring real reform to those greedy capitalists who almost brought down the global economy," it was said of those prognosticators. "No more bailouts! Read my lips: No more bailouts!"
Well, lo and behold, Mauldin presents the research of bond guru Chris Whalen and guess what? The data support the prognosticators' hypothesis.
"Reform" has resulted in what Mauldin calls "unprecedented financial repression." Worse yet, who do those "reforms" impact most? Not those exploitive, fat-cat Wall Street financiers and bankers who nearly pushed the global economy over the cliff. No siree. Their salaries, commissions, and year-end bonuses are good as ever, if not better than they were prior to the Great Debacle of 2008. No, Dodd-Frank hurts those who can least afford it--retirees and pensioners.
How so?
Whalens' graph demonstrates that the cost of funds for US banks has dropped ~$90B since the financial crisis. But, note that net income to US banks has risen almost the same amount. Examine Whalens' graph carefully:
What changed during QE? According to Whalens, banks are paying less to businesses and those who save.
~$90B less to be exact.
Worse yet, while the Fed's quantitative easing policy (QE) increased the value of financial assets (like stocks), QU hasn't produced the wealth effect the wizards of smart at the Fed had promised. Yes, stocks have reached new highs, but businesses and those who save are paying for it. How? Interest income from bank savings has been moved into the stock market, making retirement a far more risky proposition for retirees and those who live on pensions. And that's to say nothing about all of those unfunded state pension funds! What happens if they go belly up?
Mauldin calls QE "trickle-down monetary policy" because those wizards of smart thought QE would create a "wealth effect" for businesses and those who save. But, Dodd-Frank--ostensibly passed to protect those very people--ends up benefiting the Wall Street financiers and bankers the law was originially said to restrain.
In this environment, how is one create a retirement portfolio that will provide sufficient income without significantly increasing risk at precisely the wrong time in life?
Rather than helping to provide an answer, the wizards of smart have made it much more difficult to determine what is the best approach to build wealth for a secure retirement. The Motley Monk suggests that perhaps it's time to consult a Wall Street financier or banker.
Let the discussion begin...
To read John Mauldin's newsletter, "Outside the Box," click on the following link:
http://d21uq3hx4esec9.cloudfront.net/uploads/pdf/OTB_Apr_03_2015.pdf
~$90B less to be exact.
Worse yet, while the Fed's quantitative easing policy (QE) increased the value of financial assets (like stocks), QU hasn't produced the wealth effect the wizards of smart at the Fed had promised. Yes, stocks have reached new highs, but businesses and those who save are paying for it. How? Interest income from bank savings has been moved into the stock market, making retirement a far more risky proposition for retirees and those who live on pensions. And that's to say nothing about all of those unfunded state pension funds! What happens if they go belly up?
Mauldin calls QE "trickle-down monetary policy" because those wizards of smart thought QE would create a "wealth effect" for businesses and those who save. But, Dodd-Frank--ostensibly passed to protect those very people--ends up benefiting the Wall Street financiers and bankers the law was originially said to restrain.
In this environment, how is one create a retirement portfolio that will provide sufficient income without significantly increasing risk at precisely the wrong time in life?
Rather than helping to provide an answer, the wizards of smart have made it much more difficult to determine what is the best approach to build wealth for a secure retirement. The Motley Monk suggests that perhaps it's time to consult a Wall Street financier or banker.
Let the discussion begin...
To read John Mauldin's newsletter, "Outside the Box," click on the following link:
http://d21uq3hx4esec9.cloudfront.net/uploads/pdf/OTB_Apr_03_2015.pdf
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