91ÊÓƵ

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness … we had everything before us, we had nothing before us.”

No, that isn’t from Barack Obama’s second inaugural or even his speech in Cairo. It’s from Charles Dickens’ novel “A Tale of Two Cities.” However, it does sound enough like the present to give one pause for thought. This is particularly true with regard to the economy.

Ironically, in the age of Obama (“The Great Equalizer”), two very different economies have emerged – and they share very little in common. First, there is the Wall Street economy. This is populated largely by rapacious financial types who spend most of their time gulling unsuspecting folks into predatory mortgages and the like. You know the type – greedy and reckless. Then there’s Main Street, beer and pizza, or barbecue as the case may be, the busted knuckle garage and old Harley parts. The former has benefited enormously from the Fed’s easy money amid tight credit while the latter continues to suffer.

Wall Street houses and equity fund operators are the insiders, while you are the essential grist for their money mill. They move back and forth between the highest levels of business and government with consummate ease, profiting enormously thereby. All the while, hours worked and wages earned by the middle class shrink and return on savings disappears.

Most ordinary Americans have benefited very little from the run-up in equity prices driven by the Fed’s relentless growth of the money supply. Only recently have they seen any recovery in the value of their primary asset: housing. Finally, they have less to spend from their savings because the Fed’s near-zero interest rate policies have slashed these anticipated income streams to near zero.

This schism is exacerbated by the siren call of the stock market. With returns on traditional safe-haven investments next to nothing, more and more money is being lured into a stock market that is essentially played out. How much higher can stock prices go with an economy that is essentially flat and likely to remain so for many more years?

In this environment, the stock market essentially becomes a zero-sum game: someone must lose for others to win. In this case, it’s Wall Street and aforementioned fund operators who are the winners, having driven asset prices up the past four years with the Fed’s funny money.

It should be obvious to all by now that monetary illusion (more, cheaper money) is no substitute for real growth. All it does is grossly distort the allocation of capital and further enrich a fraction of the population that has access to it.

My advice is to begin raising some cash by selling off some better capital gains positions in equities. A larger cash position will allow one to take advantage of the fluctuation in asset pricing that is sure to come.

The game is about played out. How can an economy that is so weak as to forestall the Fed’s much ballyhooed tapering possibly provide more support for further short-term capital gains?

Robert Smith is president of Peregrine Private Capital Corp., based in Lake Oswego. Contact him at 503-241-4949 or at www.peregrineprivatecapital.com.