1. The Economist 3/23/13 The Financial Repression Levy. There is more then one way for savers to lose out. In Cyprus, the overnight raid on savings was a shock. But savers in other countries have also seen a hit to their purchasing power in the form of negative interest rates, a form of financial repression. Americans who invested in 6 month CD’s between 2009 & 2012, earned 3.2% before tax, when consumer prices rose 6.6%. The financial repression levy was therefore 3.2%.
Why didn’t anyone get wise to the erosion of their spending power? One answer, in times of turmoil , people become more cautious and save more. Especially when the stock market presents a risky alternative; those with limited means cannot afford to gamble. Then, the savers become targets for Bank debt write- offs. Where is the choice?
2. LOL THE ECONOMIST 3/9/13. America’s Stock market, better then the alternatives? Dow reaches a record high. The Dow has been accompanied by the weakest GDP growth of all of the bull markets since WWll. Mohamed El -Erian , the CEO of PIMCO, stated: For the rally in equity markets to continue, the current phase of assisted growth , needs to give way to genuine growth.
The stock market fundamentals are not encouraging . The best long term measure of value, the cyclically adjusted price earnings ratio, is at 22.9 , around 39% above it’s long term average, according to Robert Schiller of Yale. During the dot com bubble , the P/E’ reached 44 in late 1999, The aftermath of that bubble illustrated an age old rule. When investors buy assets at above average valuations, they will suffer below average returns. The Bulls are happy to leave that worry to another day. (The Economist/ verbatim) We have a choice.