Last week, I mentioned that just because the Fed wasn’t talking about an exit strategy didn’t mean it wasn’t thinking about one. Sometimes you get lucky—on Saturday, the Wall Street Journal ran with an article on just that.

As the paper reported, Fed decision makers don’t know exactly how they will exit, as it will depend on the circumstances, but they’re now pondering it. To some extent, this puts paid to the notion that we’re doomed to continue on our present path until everything melts down. Yes, the Fed will exit at the appropriate time, even as the economy continues to improve on its own.

Yesterday, two of my colleagues and I were discussing the end of the world, a conversation prompted by some of my recent posts, as well as a call from an advisor seeking help with a client who has a nine-figure net worth and fully expects the world to end. In discussing what to do, we realized we hadn’t actually defined the problem: what does the end of the world mean? The last time we seriously had this discussion, in 2008–2009, we thought we knew what the end of the world looked like, but in talking it over, we realized we didn’t. So, in that vein, here’s my attempt to define various “end of the world” scenarios and what to do about them.

Defcon 1 – The U.S. today: economic uncertainty and looming hazards

One of the challenges in anyone’s life, especially in one’s job, is figuring out what’s really going on. For me, and anyone involved in the financial sector, this is especially complicated because there is an infinite amount of data, interpretations, arguments, and conclusions that will tell you up, down, right, left, buy, and sell—all at the same time.

The physical sciences have been dealing with this problem for a long time and refer to it as isolating the signal—the meaningful information you need—from the noise, the random events that can mask the signal.

Yesterday, I was asked to respond to an article on the views of Peter Schiff that appeared on the website Moneymorning.com. I’ve written a couple of these responses, and I think it makes sense to keep addressing questions as they come up, as many of these issues are worth a look on their own merits. The headline of the piece in question reads, “2/3 of America to Lose Everything Because of This Crisis.” If that’s true, it certainly deserves at least one blog post, right?

I’m familiar with Mr. Schiff’s views, as he’s a regular poster on various financial websites that I read. He also shares his opinions on his own website. His views are well known, and he’s not alone in them.

For some time, I’ve been convinced that a sustainable expansion has been going on in the economy, but I do have some concerns. The primary one is employment. While housing continues to recover, business investment is doing relatively well, and consumer spending is growing more strongly than expected, all of this depends on employment growth. For the next several months, the signs are good that it should continue.

What will increasingly matter, however, is whether the job growth continues, as well as the quality of the jobs, and here I have some worries. One of the biggest is how Obamacare will affect both the amount and type of hiring. This isn’t a political argument; the law contains multiple incentives that should—if employers are rational—influence their behavior.

As I’ve written several times, taxes have to go up, and when they do, it will be done in a stealth manner, without specifically calling it a tax increase, or by using some other justification.

We’re seeing exactly that right now in the form of Internet sales taxes. Just yesterday, the Senate approved a bill that would allow states to force large online retailers to collect sales tax, even if they have no operation in that jurisdiction.

One of the things I’ve been keeping an eye on is student debt, widely touted as the next bubble. As you can see in the following chart, student debt is at an all-time high, approaching a trillion dollars.

[youtube=http://youtu.be/vRBSiyhTTvo?rel=0=0hd=1]

I’ve been at the Goldman Sachs investor conference yesterday and today, listening to and learning from a group of very smart people. Among the smartest were Alan Simpson and Erskine Bowles, the cochairs of the commission that brought us the Simpson-Bowles (or Bowles-Simpson) budget plan. Unexpectedly, they were also the funniest, which, given their dire message, was a relief.

At Commonwealth’s National Conference last year, I gave a fairly detailed presentation on the budget problems we faced, noting that I believed any solution would eventually converge to something close to the Simpson-Bowles plan.

Recently, I’ve noticed some pushback on the notion of onshoring jobs. In particular, some economists I respect have noted that there’s little aggregate evidence of a systemic change so far. Most evidence is anecdotal, they say, and overall manufacturing continues to be relatively weak, despite some signs of strength.

I agree with that, but I don’t necessarily think it disproves the onshoring case. What we’re talking about here is a multi-year process, which will start slowly and then gather momentum—exactly as the offshoring process did. Second, in a time of global economic weakness, it’s hard to discern a nascent strengthening trend against a backdrop of much stronger global weakening. Third, we continue to see signs that manufacturing in the least expensive countries has its own sets of problems, which are becoming increasingly public.