I have spent most of my adult life trying to find out if there actually is such a thing as a free lunch. Despite my efforts, I have yet to find one.

And so it is with economic news. We hope for things to happen that will signify growth and health only to realize that the rebound comes at a cost of those industries and sectors that were managing quite well in challenging times.

It’s kind of like rooting for the advent of man at the cost of the dinosaurs. They didn’t wipe themselves out; conditions changed.

This is precisely where we find ourselves now.

The Federal Reserve and everyone else’s central banks continue to pump cheap money into the financial sector to bolster banks that completely overplayed their hands and almost took down the modern global economy. And now that we have some perspective from the onset of the collapse, every major economy’s banks (except Canada, of course) were over-leveraged and primed for implosion. It wasn’t just U.S. institutions.

The Europeans decided that executives who brought this financial shame and duress upon their economies must also pay a price moving forward and limited executive compensation as a lesson. Sadly, that attitude stayed on that side of the Atlantic.

In the United States, the folks who were more than happy to take our money to save their butts have decried the EU’s move. No surprise there. Now that taxpayer money pulled them from the fire and the Fed has committed years of monetary policy to rebuild their coffers at the expense of individuals as well as well small and medium-sized business, they see no reason why they should expect any recompense for their stupid and sometimes criminal incompetence. More bonuses! Too big to fail rolls on.

But I digress.

The point here is some of the economic suffering is being alleviated. The financial services sector is in rally mode. And housing is starting to take off again.

These two encouraging signs come with caveats, however: the price of the lunch. First, since the housing market collapse was what started this whole mess, banks have been holding on to a lot of foreclosures.

And having direct and anecdotal evidence piling up for years, the banks were in no hurry to write them off their books or even sell them at fair market value, much less a discount. Part of their reasoning was that once they wrote them off or sold them, it would show up on their earnings and income statements; and that would not look good. As long as they didn’t touch them, no one could really know how much potential liability the banks were holding.

With rates exceedingly low, buyers have more spending power; and the strong dollar means investors from around the world are swapping dollars for real estate. The Miami area market is on fire, as are the markets in Houston and Phoenix. A lot of Latin American money is coming into those markets.

Lending is still tight for the average American, but wealthy investors from around the globe are able to buy their piece of the American dream. And this is helping the banks unload properties and issue low-risk mortgages. Along with the Fed’s enabling monetary policy, it’s boosting their earnings.

The Problem With Success

This is what we’ve been hoping for, right: a reinvigorated financial sector and a strengthening real estate market?

I always remember the great Chinese curse, “May your wishes come true.”

The point is all this success has some serious implications. The first is the great bond heyday is coming to a close. As stocks continue to rise and the world becomes increasingly “risk off,” all that safe money in bonds will start to head to stocks.

That means the bond bubble that’s grown over the past several years may go out with a bang, not a whimper. And if inflation accelerates, it could get very ugly.

Remember, the reason we haven’t seen inflation after all this easing is that the money is being used by the big banks to sort out their decimated balance sheets. Once they start pumping this money into the economy, say lending money to small businesses, individuals, etc., inflation won’t be far behind.

So it’s my view we’re in for a bumpy ride. Washington isn’t getting along — again. Wall Street is quickly forgetting the cautionary tale of the last handful of years — again. And money is running out of bonds and precious metals into stocks and real estate. All this while China, the unquestioned global engine of growth, sits on its own potentially massive real estate bubble and commodity prices are still bottom feeding.

Go With The Pros

I’m not a big fan of mutual funds. But in times like these, if I can find a smart adviser who has a good system in place, I’d rather put my available assets with him.

Two that I think are especially timely are the SGA Global Growth Fund (SGAGX) and the Auxier Focus Fund (AUXFX). These funds aren’t built for flash; they’re built for long-term growth and safety.

SGAGX co-founder and fund manager George Fraise believes that the best way to preserve and grow capital while minimizing risk is to invest only in the most predictable and most sustainable high-quality growth companies and allow the strong cash flows generated by those businesses to compound out for investors.  And it works well. The fund doubled the performance of the MSCI Global Growth Index last year, and that’s not unusual.

Jeff Auxier, president and CEO of AUXFX, believes compounding is the most influential element of an investment program. He looks for companies in slow growth industries, which often achieve the best performance over the long-term investment horizon. His goal is to find value with a significant margin of safety relative to price and follows a price/value strategy that helps eliminate emotional reaction to market panics. This strategy has earned him a 4-Star All-Time Morningstar rating, as well as 5-Star 10-year and five-year ratings.

— GS Early