Doing Well with an Economic Illusion


We have to step back and question the reality of the U.S. economy. As the U.S. economy whistles past the graveyard, the global economy is in disarray. But that may not last too much longer.

According to many, there’s nothing real about the economy recovery. In fact, it’s an illusion to some, like Peter Schiff.

“This economy would have to improve dramatically to get to mediocre,” noted Peter Schiff early Monday morning.

“The Fed can’t raise rates because they don't’ want to poke too many holes in this bubble,” he continued. “This recovery was never real, it’s phony, it’s just another Federal Reserve bubble just like the one that popped in 2008, only this one is even bigger.”

“What we should be talking about is not when the Fed will hike rates, but when they will admit the economy is a lot weaker than they expected and when the next rate cut and when they will launch QE4…”

In fact, we’ve been warning of this stark reality for months.

Behind those 5% unemployment numbers are a great deal of angry Americans that gave up looking for work. That 5% headline figured blindly, and ignorantly ignores millions of Americans that can’t find a job… or gave up looking.

Consumer spending is soft. The US savings rate is back up to 5.4%. And recent weakness does not bode well for GDP…

Before you jump on the bandwagon of bullishness, consider these realities. Divorce yourself from the herd mentality that’s likely to drown many bulls along the way.

While we can always invest in safer assets like commercial real estate, or divert to cash positions in the stock market, or even use stop losses, there are other ways to strengthen your position before things go a bit awry.

In fact, Warren Buffett has some great strategies, including investing in yourself.

“Imagine that you had a car and that was the only car you'd have for your entire lifetime,” he notes.” Of course, you'd care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person's main asset is themselves, so preserve and enhance yourself.”

Two, don’t follow the pack.

“You need to divorce your mind from the crowd. The herd mentality causes all these IQ's to become paralyzed. I don't think investors are now acting more intelligently, despite the intelligence. Smart doesn't always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.”

Three, be sure to learn from others’ mistakes along the way.

“The best thing is to learn from other guy’s mistakes. Patton used to say, "It's an honor to die for your country; make sure the other guy gets the honor." There are a lot of mistakes that I've repeated. The biggest one, the biggest category over time, is being reluctant to pay up a little for a business that I knew was really outstanding.”