The S&P 500 is a solid benchmark for the stock market. Tracking 500 large companies, diversified by industry and sector, its movements can give you a good feel for what’s going on in the U.S. financial markets and the real economy. These are blue-chip companies with strong balance sheets and market position, and they should continue to grow and make money over time.

Good investments, right?

Although I touched on a few specific examples the other day, finding a way to express the failure of economics in the face of politics is difficult. There aren’t many smoking guns out there.

Or so I thought. Fred DeBaets, one of our fixed income experts here at Commonwealth, sent around the following chart yesterday morning. It shows that nine countries—all in Europe—have negative interest rates for two-year government debt.

A major concern of the baby boomer-dominated media, as well as the economics profession and government agencies (also dominated by boomers), has been the fate of—you guessed it—older workers, mostly boomers. How many of them are out of work and disabled, or able and willing to return to the workforce? Good questions, but hardly the only issues out there.

While I’m certainly worried about the aging boomers, my own position—right in the middle, in Gen X—makes me more concerned about the job prospects of the younger generation, who will be paying for my retirement (hopefully).

How much money companies make—their earnings—is a key factor in analyzing how expensive the stock market is. Depending on what you expect earnings to do in the future, you might decide that the market is either:

1. Very expensive (my own conclusion, based on longer-term valuation measures), or
2. Quite reasonable, if you assume current earnings trends are stable and likely to accelerate.

As I wrote last week, the ties between politics and economics are only growing stronger. Let’s look at some current examples of how the two are intersecting—and what this means for investors.

One of the things holding back the economic recovery recently has been slower-than-expected consumer spending growth. Apparently, consumer spending has been constrained by Americans’ newfound unwillingness to borrow.

I suspect, however, that this is an illusion created by a deeper problem. Consumers have the money—in fact, net worth has recovered to an all-time high—they just aren’t borrowing and spending.

Okay, I admit it. Not only did I get up to check the numbers on the Scotland independence referendum every hour or so last night, but I also spent a few hours earlier in the evening arguing with friends about it. I’ve never been this personally engaged in a foreign political event.

I find it hard to explain why this is, even to myself. I come from a Scots-Irish background, so that may be one reason. Another reason is that I identify with the romantic, hopeful aspirations that drive the independence movement.

The important thing about yesterday’s Federal Reserve statement was—in the words of Sherlock Holmes—the dog that did not bark. The Fed's statement included the “considerable time” language that some, including me, had been obsessing over.

For those of you with lives, perhaps some clarification would help. As the Fed continues to move toward a more normal monetary policy, we're seeing two things:

I am headed to New York today to speak at a conference on liquid alternatives. These types of alternative investments are often thought of as hedge funds for the masses; the idea is to take hedge fund-like strategies and wrap them in mutual funds. Ideally, this makes the expertise and money-making capabilities of all those hedge fund wizards available to mom and dad, so we can all get rich.

For many, the study of economics goes back to the eighteenth-century urtext, The Wealth of Nations, by Scottish economist and philosopher Adam Smith. Notably, Smith and his contemporaries did not study economics, but political economy. At the time, there was no notion that economic behavior could be analyzed separately from its context, the political environment. The different governmental structures made the impact of government on human behavior absolutely impossible to separate—the ties between politics and economics were inextricable. To put it another way, it would be like considering the health of the brain while ignoring that of the heart.