Not long ago, I was asked to speak at a conference in Denver. Sharing the stage with me was Dr. Michael Cox, perhaps one of the most intriguing individuals I’ve ever had the pleasure of talking with. W. Michael Cox, Ph.D., is director of SMU’s O’Neil Center for Global Markets and Freedom, which studies the impact of competitive market forces on freedom and prosperity in the global economy.
Cox is former chief economist and senior vice-president of the Federal Reserve Bank of Dallas, where he served for 25 years advising the President on monetary and other economic policies. He is the author of numerous op-ed articles for The Wall Street Journal, The New York Times, USA Today, Financial Times, and Investor’s Business Daily, and his work has appeared in virtually every major newspaper and magazine worldwide. He is the author of Myths of Rich and Poor: Why We’re Better Off Than We Think.
Dr. Cox spoke at length about the ramifications of the weak recovery and what it might portend for the future for investors, retirees, and those approaching retirement. One of his primary concerns is exemplified by the labor participation rate. “Obamacare is reducing participation in the labor market because it has dramatically raised costs for employers.” Cox is certainly not a fan of Obamacare, and feels that is has been a “significant job-killer, which is creating a drag on Gross Domestic Product (GDP).” According to Cox this is creating a drag on growth across the board.
Unfortunately, I met with Dr. Cox before the recent admission by MIT economist Jonathan Gruber. The guy who has been dubbed the “Obamacare architect”, and who stated that it was “the stupidity of the American voter” which made it important for him, and Democrats, to hide Obamacare’s true costs from the public. “That was really, really critical for the thing to pass,” Gruber said. It would have been interesting to have heard Dr. Cox’s take on that particular revelation.
Dr. Cox also said he is keeping a weather eye on interest rates. “Rising rates have historically impacted both the stock and bond markets deleteriously”. He
said further, that “following a 1% rise in rates you have historically seen a collective -10.5% drop in stock prices. It also has a negative impact on bonds for obvious reasons”. However, he feels that the FED should be raising rates to induce the banks to lend again. “Right now banks are sitting on huge amounts of excess reserves. They are getting paid to hold onto these funds, as opposed to being paid to lend the funds in essence. The FED is keeping the rates artificially low. This is pure Keynesian monetary policy and it’s never worked anywhere in the world. Japan tried this, and it’s debt to GDP is 228%, and the USA is right behind”
Final Edit: Dr. Michael Cox
Dr. Cox feels that “Nothing about our current economic policy is about incentives. We have the highest corporate tax rates in the world, and we’ve never had a higher percentage of takers vs. givers in American history.”
I asked Dr. Cox about what actions he thought people could take to benefit from this environment. He listed several strategies including:
Understand the potential for lower returns in fixed income securites. Know that there is potential to build your assets in any market environment or economy.
Reduce taxes (which he feels are sure to rise) by pursuing tax-deferred and other tax advantaged vehicles.
If investing in real estate consider looking at states that are growing like Texas, North Carolina, Georgia, Florida, Arizona, South Carolina and Tennessee. Please consult with a real estate professional for advice.
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The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced in historical and is no guarantee of future results.
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