The American economy vs gravity

The American economy always feels better when the Super Bowl is on. Ads for trucks and beer fill the airwaves. It’s steak and cigar season for the corporate bigwigs, not a time for the calorie conscious. For a few days, they can forget about foreign labour and cratering emerging markets and wallow in the fantasy that America is still about men in faded jeans and worn baseball caps, doing practical things with their hands. Now the pigskin has been locked away until autumn, however, one can take a colder look at the behemoth.

No doubt, it has been a fine few years to be rich in America. The crash of 2008 turned out to be an epic buying opportunity, and you didn’t even have to use your own money. The Federal Reserve was offering its own, via a $800 billion quantitative easing programme, in the name of stimulus. The only terms of access to this geyser of free cash were to be rich and credit-worthy already, or to be a failed bank with friends in government eager to help you jump the line.

For this happy 1 per cent, the stimulus has had the desired effect of wide grins and flushed cheeks. The remaining 99 per cent of Americans, though, are feeling rubbed in a less positive way. Recovery has been halting and unevenly distributed. Investment in venture capital has surged, a great indicator of the availability of speculative capital within the top economic class. But house prices on a national level, a more reliable indicator of general economic health, have bumped along.

Equities have had a tremendous 18 months, soaring more than 30 per cent and replenishing retirement accounts. But the Fed’s money has made it hard for investors to discern real rather than speculative value in stocks. The return on a risk-free investment, the classic starting point for valuing an asset, is now hopelessly distorted.