Stock markets have nothing to do with the real life of the average citizen, no matter what the pundits say on TV. In fact, the better the market is doing, the worse life probably is for real people.
The 2012 world markets back this up. Venezuela – that bastion of freedom and liberty – turned in an eye-popping 302.8% return for investors. Over in Europe, while Greeks burned their capitol, formed neo-Nazi gangs to police their streets, and fought over food, the market shot up 32.5%. Egypt may or may not be a failed state (pick a day) but the market will give you a 49.6% return on your money.
Meanwhile, back in America, the 2013 markets are heading sharply higher. At 14,000, the Dow Jones Industrial Average is approaching highs last seen in 2007. The S&P is up to 1516, with small caps turning in a year to date gain of 7%. The talking heads are positively giddy.
The man on the street? Not so much.
Thanks to ongoing drought conditions around the country, food prices are up 4% year to date. The payroll tax break is gone, along with 2% of your income. Fuels costs have shot up more than 50 cents a gallon on average since the start of the year. I’d go on, but it’s flat-out depressing.
And the government’s response? Well, sorry, but our leaders can’t be bothered. Haven’t you heard about the sequester/fiscal cliff/debt crisis? That sad lot is so busy bashing each other, they just don’t have time to help out real people.
Yet it doesn’t mean the situation is hopeless – far from it. The numbers we’re seeing now are a clear warning to informed Americans about what’s coming next.
Historically, when markets become sharply divorced from economic conditions on the ground, governments topple. It’s not necessarily a violent revolution, but traditional power structures take it in the shorts. So does anything backed by the government at the time. And those with the foresight to hedge the collapse walk away big winners, a la George Soros betting against the strength of the English pound for a profit of nearly $1 billion.
Naturally, there are no promises you’ll be able to get it right and get rich like Soros. But that doesn’t mean you have to let the market’s message fall on deaf ears. Switch from straight cash and stocks (both government-backed institutions) into tangible assets that will hold their value. It doesn’t have to be gold or silver, though precious metals are an easy choice. Argentines, for example, have traditionally loaded up on washing machines, cars, and homes in good neighborhoods, while Iranians buy bulk grains and clothes.
Do what’s right for you. The key is to build up a position of security you can use to ride out the coming storm – because while the markets don’t say when, the gap between stocks and reality lets you know something big is on its way.