Recruiter’s View

If you believe and clap your hands, the Fed Fairies will live. During his tenure as Fed Chairman, Ben Bernanke miraculously salvaged the US financial system, and – in the process – helped lower our credit and credibility. This week, Bernanke’s carefully phrased farewell conference absolutely ignited the equities markets. Indices rocketed to new highs, based on warm phrases, questionable data, and no precedence of any kind.

Be advised – Uncle Ben warned those of us without proper training to refrain from looking behind the curtain. Our job is to believe.

Helicopter Ben has been dropping cash out of the sky for years, now. Free money is an admirable and time honored solution for most of mankind’s ills.

In a stroke of genius, Bernanke pulled off a brilliant finale to wrap up his term as Fed Chairman.

His December 18 exit statement contained the firm assurance that less money will be available – by a small percentage – at a specific future date.

With that announcement, Bernanke put another success on his resume at virtually no cost or special obligation to anyone else.

For my part, I’m willing to give Bernanke all the credit he wants. Somehow – with frightfully few resources – he was able to keep us afloat even as Congress conspired to sink us deeper into debt.

As Janet Yellen prepares to take over the Fed, some speculate that she might be willing to out-Bernanke Bernanke, actually increasing the supply of Funny Money, if she decides it’s necessary.

So, how am I answering people who ask me about the economy?

Here’s how we break it out…

Private Industry

I still believe the tightest, best run, most productive organizations in the world are global corporations.

They are closely monitored and profit oriented. They are rewarded for growth and profitability.

They tend to protect their images and reputations. And they learn to do all this across many cultures and legal systems.

Keep this in mind as I tell you the rest.

Credit

The United States was once the strongest economy in the world.

That’s over. We are no longer a creditor nation. We are a debtor nation.

We have run up the largest debt in the history of the world.

Our credit rating has been officially downgraded.

We now “purchase” our own debt, partly because few investors want anything to do with it.

The US Dollar was once the standard currency for international trade. It was even the basis for foreign currencies.

Today, countries around the world are coordinating trade policies that specifically avoid exposure to the US Dollar.

They know we are aggressively debasing the Dollar, expecting inflation to reduce our debt load.

Credibility

US citizens don’t trust their own government. The president’s approval rating has turned negative. Congress has almost no approval at all.

Incomes are down.

Taxes are up.

Job creation is slow.

Department of Labor employees admitted to falsifying unemployment numbers to make their reports seem more positive.

Socialized health insurance has – some would say intentionally – caused many millions of policies to be canceled.

The government has organized open-ended spying on all of its citizens. German Prime Minister Andrea Merkel – whose own phone was tapped – has likened our NSA to the Stasi.

Major Press organizations report that their records have been compromised. Reporters have been intimidated.

The IRS testified that it broke Federal law on a repeated and widespread basis. The IRS, by the way, is your new insurance agent, responsible for collecting inflated health insurance premiums.

The State Department has not yet come clean on Benghazi.

The US government still hasn’t figured out why it put large quantities of armaments in the hands of Mexican drug cartels.

And the head of the Department of Justice is still in contempt of Congress.

Credit And Credibility

The old US of A doesn’t offer much to trust in terms of performance or credit ratings, right now.

In fact, Ben Bernanke once testified that he would absolutely NOT print up a whole bunch of money, just to paper over our financial problems.

Then he did it.

Corporate Versus Government

Is it any wonder, then, that money is flowing to profitable businesses, instead of betting on government promises?

What are investors supposed to do?

So, money runs to promising, trustworthy companies. And the stock market goes up.

And what about inflation?

It’s here.  Almost, but not quite, concealed.  As inflation heats up, rate sensitive stocks will drift. Otherwise, stock multiples will rise to keep up. Engineers in our energy sector… You should be fine.

So what’s the problem?

The threat lies in the potential panic of a credit-laden and unprincipled government leadership.

The US government will be under increased pressure, as it allows interest rates to rise.

Holders of astronomical amounts of debt eventually can’t meet their obligations when interest rates go up. Especially if they are already borrowing money just to pay the interest currently coming due.

Government can get increasingly grabby when it perceives that it needs your money more than you do.

And that is, potentially, a major problem.

The markets, and everything they represent, could go (are expected to go) suddenly ugly when the government gets caught by its own bad behavior.

A Stunner

During his December 18 press conference, Ben Bernanke made a very strange statement.

In answer to a reporter’s question, he proudly stated that interest payments on QE money had generated a nice return for taxpayers.

Let’s get clear on this.

The Fed is printing fake money to prop up our failing government. Then it distorts the market by loaning this money to the government at reduced rates (killing fixed income savers in the process.)

It is currently doing that at the rate of $85 billion per month.

Bernanke just said that this fake money, loaned at artificially low interest rates (because few others will make these loans) is a really kicky investment, returning a swell profit to taxpayers… at these absurdly low rates.

Paid with fake money.

Because we are broke.

Who do you trust?

The Recruiter’s View

Engineers will continue to benefit from forces we have outlined for years.

Pick your industries carefully. Companies that are sensitive to interest rates will slow their hiring.

Industries that the government wants to kill (i.e., coal) will continue to suffer.

Others (oil, aerospace) could actually benefit.

Keep your credit cards paid down.

Bumpy road ahead.

— TD