Please do not pay attention to the elephant in the room. As you read this comment, it will not help to focus on the elephant. So it is the end of 2010 and I would like to take this opportunity to a few remarks about the economy, the demographics of the United States and the future to take. And remember: do not think about the elephant as the elephant to the end I discuss.
In early 2010, most forecasters were negative on the stock market and skeptical about the resilience of the recovery. Example, Fortune magazine predicted a coming collapse of the market because stock prices were “surprisingly expensive.” During the first nine months of 2010, mutual fund investors pulled more than $ 150 billion of equity funds and poured into bond funds. This happened as the stock rose. In fact, the Standard & Poor’s 500 total return was about 15% for the year.
During the month of December, the yield on the ten-year U.S. Treasury bonds increased from 2.5% to 3.5%. Because bonds trade inversely with interest, the ten year Treasury lost about 8% at market. Those who bought the stock to invest in this ‘safe’ bonds will not be encouraged if their year-end bond fund opening statements. They will have missed the recovery of stocks and experienced a loss in “safe” ten years in the U.S. Treasuries. The increase in ten years interest is a first indication of the inevitable inflation, because if the Fed prints dollar bills, inflation, its value kills. ”
Demography – Once our friend!
The final 2010 U.S. Census data is not out yet, but there are some alarming estimates based on the previous census. Between 2010 and 2025, the number of the most productive people (age 50) decrease of more than ten percent. The number of retirement age people (those reaching age 65) will increase by nearly eighty percent. I really do not like these numbers. In fact, I hate them.Because it makes me feel that no matter what the government incentives offer, regardless of what tax cuts are adopted, no matter how much more deficit spending the government creates, no matter how much we mortgage our children’s future, there go to eighty percent more employees the retirement age for the care and ten percent fewer workers to do the job.
So I will be positive stock market returns from 2010 and I will be very happy. I keep my eye on the short-term swings. I, along with everyone else, will work around my head in the sand and just keep refusing to look at the demographics.
The Elephant
Maybe if we all ignore the elephant in the room, he will leave. The elephant is bigger if the federal debt increases. He has become so great that he can not leave through the door. I’m afraid that if he tries to force himself through the door, he can bring the house down. And we keep feeding him! A trillion dollars this year, two trillion U.S. dollars last year, a half trillion dollars next year – he gets really big!
OK. We have an elephant in the room. At one point he started to smell inflation. He will smell of lower GDP. And he’s more than deficit spending to survive. He is going to need higher taxes.
How to Protect Yourself from the Elephant
You need to make (and live in) your own insulated protective biosphere. That is why most MLP experts recommend Master Limited Partnerships. Income advisers who really understand MLPs recognize that MLP distributions in the past during periods of inflation. They also paid deferred income taxes. They also have a record of reliability. Tax deferrals, tax-deferred income, reliable, inflation protection and a history of performance, MLPs make a great way to build your protective biosphere. Even though you still see the elephant, you do not smell him. He is not gone.