Becoming financially well off in this country is easy to do if you follow the big money.  The hedge fund managers, the institutions, and the “evil” one percent know something that you don’t know.  The saddest fact of all is it is completely your fault for not knowing this information.  But don’t worry about that because I’m here to help you out.  I’m going to introduce you to a few basic economic and investment concepts and.  Along the way, we will see how Detroit went bankrupt, our infrastructure is crumbling, and the vast majority doesn’t seem to care as long as they have their iPhones.

            The markets and the investment strategies of the wealthy can tell us a lot about where this country is, and where it is headed.  Let’s take a look at industry group analysis, a study of which sectors that the ‘big money’ is flowing into and out of, and see if we can understand why America is in the current mess.  Sure, the markets are reaching new highs and corporate profits are through the roof.  But ask any economist, and he will tell you that there is not necessarily a direct correlation between the stock market and the U.S. economy. 
Using this analysis we can see what industries have prospered and which have failed, and how the billionaires are getting richer off of it all.  For the past few quarters we have seen out of 150+ sectors, that the bottom has been comprised of various Industrial, Energy, Materials, Homebuilding, and Mining industries.  What this means is that no one at the top is investing in things like steel, coal, fertilizer, building materials, or anything that could be used to improve our infrastructure.  What has been at the top of the list for hedge fund managers, and which sector has seen the greatest gains?  That would be Home Entertainment and Consumer Discretionary.  Video games and iPads. 

            What this means is that while water mains are breaking after decades of overuse, roads and bridges are crumbling, and Detroit is wasting away, people in this country are getting rich off of the distractions they sell to us.  Of course, Detroit also had huge union and Democrat issues that led to its bankruptcy.  In a direct correlation with those policies, many people at the top felt there was no reason to put their billions of dollars into things that cities like Detroit could really use. 

            The hedge managers aren’t interested in investing in infrastructure sectors because we as a country aren’t focused on that.  Over regulation has made it virtually impossible for the private sector to come up with implementable solutions to the infrastructure problems we face.  Not to mention that since 2000 we have been losing factories in this country to the rate of over 15 per day.  15 factories each day are shuttering up never to employee another American again, according to the Bureau of Labor Statistics.

            But how is consumer discretionary increasing so much when according to the Fed’s numbers, Real Disposable Income per capita is at its lowest levels since the 1960’s?  The debt to income ratio has exploded in the last two decades.  In 1989 it was at 58% for the average American family, and today it is over 150%.  Our cities are literally crumbling, and we keep throwing money at the wrong things.  We are over taxed but we clamor for more government programs.  We bring home less and less due to taxation, yet Americans as a whole decide not to learn about how to manage their money and instead delve into distraction.

            So we go into debt to buy things we don’t really need.  We want to feel safe, we want cheap goods, and we don’t have any idea of how to create a long term plan for ourselves and our families.  We can see this play out too by looking at our top three employers in this country.  They are the Department of Defense, Wal-Mart, and the temp employment agency Kelly Services.  Seriously America, wake up.  We need to change this picture.

            For those of you thinking you are somehow above all of this, and that your main plan is to put everything into gold, you should review some more information.  Now I’m not saying to stay out of gold, but I’m also not going to tell you to turn all your currency into gold and bury it in the back yard.  Gold has been and always will be a hedge.  In the realm of fiat currencies, it at least has some intrinsic value, as well as being able to be used for things like electronics. 

            At over $1200, gold is holding its own rather well, even if it has dropped to its lowest price in three years.  Hedge funds still haven’t felt comfortable with it as gold has ranked at the bottom of the industrial chart for quite some time.  But if you want to buy gold, then do it.  Just know that if we ever enter into some Mad Max post apocalyptic world that gold won’t be your great savior.  You can’t eat it, you can’t burn it.  You need some form of market for gold to have a value. 

            Regardless of what you do with your money and your precious metals, you should always be aware of what those with more money than you are doing.  You may curse them for your success, and you may lament your current situation.  But you should pay attention to the moves they make.  Because it is not only a way to understand the market movements, but it is also a way to understand the socioeconomic situations of the country.  So read up on what the hedge funds and institutions are doing.  Get a little money out of them by playing their game and using their rules.  There’s money out there to be had, and earning it yourself sure beats just sitting back and expecting someone else to take care of you.

 

 

Michael Knebel