The United States…Poverty Machine?

I was reading another great Gregor Macdonald post over the weekend entitled ‘Poverty Soars in California.’

I live on an island, by a navy base so I don’t see the poverty that Gregor talks about, but I see it in the California local news every day.

The market has been rising, but it feels like nobody is particpating. I watch the steepness of the rise and it feels like a giant momentum chase. People were worn out by the markets. Mutual Fund outflows have been going in the wrong direction for years. The easy monthly money flows to 401k retirement accounts has stopped as even working people hoard cash or live off their savings after losing their job and ability to contribute.

I am a bull by nature, but I strongly agree with this ending thought from Gregor:

By combining reflationary quantitative easing and a failure to reform the financial system, in an era of higher commodity prices and deflating wages, the United States is not building an economy so much as a poverty machine.

You have to factor big thoughts like this into your investing playbook. I have been writing the last three weeks about how this momentum can’t last. Something has got to give based on our policy.


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  4. Andy Finkle says:

    not only CAN the momentum last… I expect NEW market highs in the next few years. Retail (investor) is (and has been) notably absent throughout this entire market rally off the bottom.

  5. Harry DeMott says:

    Funny, I always view the Internet as a poverty machine. Couple it with the entitlement driven policies around the western world and you have a real poverty driven machine. In the past, we could always go overseas for cheaper labor and goose profits – but the Chinese workers ultimately made more $ and started to buy some of our goods – like iPods or Hollywood fare. However, now we outsource all sorts of stuff to the cloud – and the cloud don’t spend – nor does it import. So not only does the Internet, with its frictionless distribution system, flatten gross margins forever – it also slows down the velocity of money in the worldwide economy. Information velocity increases exponentially, but $ velocity shrinks – ultimately ending up in the swollen bank accounts at $AAPL or $GOOG. So wages go down forever – entitlements increase forever – class warfare increases – and everybody goes lower over time. Not a great outcome.

  6. Dave Pinsen says:

    Manufacturing jobs were a path out of poverty to the middle class for many in the 20th century. As Paul Tudor Jones noted recently, we’ve lost 6 million manufacturing jobs in the last two decades, even as our population has continued to grow. So a major path out of poverty to the middle class is effectively history.

    On top of that, we’ve also been importing poverty, as millions of poor people have immigrated here (legally and illegally). So we have more poor people, and less opportunity for them to rise out of poverty.

  7. Anonymous says:

    Hate to be a downer, but with 300 billion dollars of retail investors money having been pulled out of the U.S. stock market in the last year, no one but us traders are participating. Its a money pumping machine thanks to Uncle Ben and his band of merry printers. If we had a credible tax policy in which everyone participated and no one mooched (and we could chainlink our political class into a porta-potty for about a century), we could create a tax-haven here, bring high dollar technology manufacturing back, and get our fiscal house in order. But…as one can see…that ain’t happening yet. Hopefully enough people will wake up, sacrifice their goodies (defense and entitlements) and get real with our debt. I am not holding my breath…but I am not a total pessimist either. If enough sane people get with the program, we can save this ship.

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