Editor's note: Charles Ortel is managing director of Newport Value Partners LLC, which provides independent investment research to professional investors.NEW YORK ( TheStreet) -- On the third anniversary of the "Flash Crash," America's most famous and cheerful optimist -- the sage of Omaha -- remains steadfast in his belief that the best days for the investing class lie ahead. Fresh from a tour de force performance at the Berkshire Hathaway Annual Meeting, Buffett is cheerleader-in-chief for the "don't bet against America" theme. Are there any reliable economic facts that support an opposing view? With great respect, I believe Buffett has actually been enabling the sale of "fool's gold" to the retail investing public since his epic New York Times op-ed titled "Buy American. I Am" was published on Oct. 16, 2008. To refresh our recollection, the Dow Jones Industrial Average closed at 8,577.91 on Oct. 15, 2008 (the day before his powerful public message) and eventually fell to 6,547.05 on March 9, 2009. Yes, this famed index is now flirting with record highs but it is denominated in nominal terms and consists of a revolving door of components, some of which left peremptorily in the financial crisis.
In my view, economic and market activity since 1999 is markedly different than it was during the last great rally that ran from August 1982 through December 1999. Investors who refuse to study the important differences between conditions now and conditions then are flying blind over hazardous territory. Worse, these stalwart investors will not be compensated fairly for taking the mammoth risks they face.
The Demographic Miracle That Is Not Returning Anytime SoonThe intrinsic growth America experienced from 1982 through 1999 was unprecedented in modern economic history. Advertising experts explain that persons aged 25 to 54 constitute "the prime purchasing demographic." People in this age group generally are more active buying goods and services and engaging in other activities that can stimulate economic growth. From 1982 through 1999, the total population grew at an average annual rate of 1.1%, but the prime purchasing demographic accounted for 73.4% of annual population growth.
TABLE 1: Share of Annual Average Population Growth in the United States Accounted for by Persons Aged 25 to 54
If these hoary names could not flourish from 2009 through 2012, how will they and others do so in a more normal environment where credit growth is crimped and where benchmark interest rates rise above consumer price inflation?
Growth in Borrowing Has Fueled Recent Economic 'Progress'Let's face it -- Americans are hooked on debt. The best available statistics show that all sectors in our economy combined (households, businesses, financial institutions, and governments) have piled on borrowings ever since the conclusion of World War II. During the 68-year period from 1945 through 2012, America's debt load has climbed in 66 years or 97.1% of the time. As of December 2012, our total debt was $53,950.8 billion or 344% of America's economic output for calendar year 2012.
We must not be distracted following trends in government debt as a percentage of economic output. Instead, we must understand that each important sector within the American economy is addicted to borrowing. TABLE 2: Total Debt Compared to Gross Domestic Product and to Spending on Consumer Nondurable Goods, 1945 to 2012
The Looming Return of 'Real' Benchmark Interest RatesCapitalism does not work well inside a nation when central bankers push nominal interest rates below prevailing levels of price inflation. To see this clearly, take a close look at the pattern of "risk-free" interest rates and consumer price inflation inside America.
Table 3: Annual Average Yield on 10 Year U.S. Treasury Notes Compared to Urban Consumer Price Inflation, 1962 to 2012