Migrating Toward Mediocrity

It is nice to step back from the world of mainstream media,
where I have been making the case I made in The Bull
Hunter. The mainstream media is reluctant to embrace the
ideas I’ve outlined, or at least to follow them through to
their logical conclusion. And what is the logical
conclusion, you might ask?

America is creating jobs over 207,000, according to the
Labor Department last week. But when you look closer,
50,000 of those jobs were in the retail business. Most
commentators viewed this with anxiety, but for the wrong
reason. The conventional wisdom is that the report
indicates inflationary pressures and that the Fed will have
to keep raising rates. In reality, the bigger concern is
that American jobs are being created, on average, at lower
average hourly wages.

This is the vaunted shift to the "service" economy, driven
by spending. Step back for a second and ask yourself this
simple question: How does a nation get rich spending money?
If you have a good answer to that question, let me know.

In the meantime, the other big drivers of employment growth
were construction and government. In fact, since 2001, over
two-fifths of new jobs have been in housing related
industries (construction, real estate, mortgage lending).
This is just one example of how housing-centric the U.S.
economy has become. In a healthy economy, business
investment creates new employment, which in turn creates
new incomes and jobs. Business spending (out of the pool of
available saving) comes first. Consumer spending comes
next.

In an economy run by economic illiterates, consumer
spending (through debt and home equity extraction) is
praised. Savings fall to zero. No mention is made that the
main drivers of employment and GDP growth are based on
debt.

No mention is made that American wages are in a soft, slow
motion swan dive as a result of a globalized labor market.
No mention is made of a study by McKinsey & Co. that up to
9 million white-collar jobs may be outsourced, in addition
to the 3 million manufacturing jobs that have already left
these shores.

And no mention is made that Great Britain and the United
States did not get rich by consuming and spending. They got
rich by producing and trading. At the national and the
personal levels, you accumulate capital by producing more
than you consume and deploying the accumulated savings on
new capital and income-producing assets.

It’s not rocket science. In fact, economics used to be
called moral philosophy. It was, and is, the study of
choices people make with money. But the choices people make
with money are driven by values, and those values, even
when exercised in the economic realm, are essentially moral
choices.

I’ve been asked what America can do to turn things around,
to get competitive, to fight back. My suggestion is that
the most American thing of all to do is to take care of
yourself and your family. There are some economic and
monetary policies that could help. But I wouldn’t count on
getting that help. Not anytime soon.

In the meantime, paper assets driven by low interest rates
are going to keep going down. Hard assets, driven by
intense global demand for scarce resources, will go up. You
will see rising prices in hard assets (like $64 oil) and
falling prices for financial assets and stocks. This
sorting out (or "reckoning," if you prefer) is just now
getting started.

Stock market legend Barton Biggs was throwing a dinner
party at his Sun Valley, Idaho vacation house in the late
1990s when a plumber showed up to clear a drain.

"I know who you are," he told Biggs.  "You’re the guy who’s
always bad-mouthing the market."  The plumber went on to
tell Biggs how he has it all wrong.  The plumber said he
barely has time to bother plumbing anymore, as he’s making
so much money day trading dot-coms that he’ll be retired
soon.

The plumber was right – for about two years.  And then
things went horribly wrong… the Nasdaq 100 Index of
leading tech stocks lost over 80% of its value from its
March 2000 peak.

Fast forward to today… geologist Matt Badiali works in my
office now, a quarter-mile from the beach in Florida.  Matt
said a plumber came over this week.  "Matt, you need to be
more in real estate.  You simply can’t go wrong in real
estate on this island.  Every penny I can get my hands on
I’m rolling back into real estate here.  I’m making so much
money in real estate, I’ll be retired soon."