Keep Your Long-Term Perspective

10/10/2011 2:00 pm EST

Focus: MARKETS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

The wild gyrations in financial markets give fits to those who don’t have a long-term outlook, says Mark Skousen of High-Income Alert in this exclusive interview with MoneyShow.com, though he does have concerns for the economy over the next year.

I’m at the foot of the master here. Tell me, all of this volatility that I’m seeing in the market, this too shall pass?

Well, you know, Wall Street exaggerates everything, and you have to understand that that is just the nature of the beast. The longer you invest in the marketplace, I think, the more you realize that you have to take a long-term perspective, or the market will drive you crazy—up 600 points, down 600 points, I mean it can vary dramatically from day to day.

On short-term news, you need to take a long-term perspective, and the long-term perspective is not good right now. In other words, if you look into the next year or so, we have been in this trading range in the stock market. And I don’t see any end to it, because we have poor leadership or the wrong kind of leadership in our country, and too much of our economy is now politically driven with what is happening in Washington.

The news out there is not good. I mean, the unemployment rate is very high. Inflation is coming back, and that is a reflection of higher gold prices. The stock market is in this trading range, and we can’t seem to break out of it, unfortunately.

Now, the Fed has come out and said we are going to keep interest rates at zero for the foreseeable future, at least through the middle of 2013. Doesn’t that raise an inflationary flag for you?

Well, it raises two things. One, it sounds like an act of desperation. I mean, to suggest that interest rates are not going to get back to normal.

I think if the Fed announced that we were raising interest rates, that would be positive news, because it says finally we have broken out of this depressed era, and we can now get back to normal business activity where you charge interest when you loan money.

Banks in particular right now are just borrowing these short-term rates from the Fed at 0%, and turning it around and investing it in safe Treasuries—it used to be safe, anyway—and pocketing the difference, but where are the loans to small business? Small business is what drives this economy.

So if they raised interest rates, and they would start hiring and so forth. We need to get back to normal and they are not doing it.

And yes, it is inflationary also, because the Fed is talking about QE3, another quantitative easing. The money supply is growing very rapidly right now. The last time I looked, it was at 20%. I mean that is inflationary…and not surprisingly gold is reflecting that, because it is an inflation hedge, and it is still near an all-time high.

Under the fundamentals in terms of the labor market, what is going to jump start that? If businesses don’t see the demand, they are not going to hire. People won’t buy things if they don’t have jobs. Where will that break?

Well, the break is that corporations are sitting on a lot of cash—they can expand, they could hire people, but they are not going to hire people as long as the burden for hiring people increases.

I don’t care what your politics is, Obamacare is a burden to business. It is extremely expensive. Raising the minimum wage 40%, which President Obama signed into law several years ago, that raises everybody’s wages and makes it more difficult. I mean, how many people are willing to hire new workers at $7.50 an hour?

Especially when they can go overseas and maybe give $7.50 a day.

Well, that’s right, that is a very good point. So we need to reduce the cost of doing business, and maybe a cut in the corporate tax rate would be good. It would be great if they reversed Obamacare. I would like to see President Obama give one of his speeches announcing, "I was wrong and I admit it."

Do politicians ever admit that they are wrong?

No, they never do, unfortunately; they are caught in the act. Unfortunately, that is not happening, but look: I am optimistic because of other countries…

At Freedom Fest, our conference every July, we had some great speakers talking about countries that are doing it right. We named nine countries, including Canada, Chile, Sweden, countries like that—even France is making more progress than we are.

So, there is hope out there, because other countries are showing us the way. We just need to follow their example.

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