Has The Stock Market Dodged A "Bullet" In The "Unlucky Sevens" Streak? NOT If The Reep Tax Cuts Are Passed!

Graph showing the stock crashes for years ending in '7'. (From The Wall Street Journal, p. B18, Oct. 18)

Many headlines have been generated in the past nine months or so warning of an imminent stock market correction or even crash.  Such headlines have included:

'A Case For The Bulls Is Hard To Warrant' - James Mackintosh

E'verything Is Awesome! Now Is The Time To Sell Your Stock' - James Mackintosh

'Warning Signs Mount As Stocks Stumble'   WSJ,  'Business & Finance', Aug.. 21

'Crashes Are Inevitable But That Doesn't Mean Now'  (WSJ, Oct. 9)

Perhaps the pithiest advice offered in these assorted stories was by Mackintosh in his 'time to sell your stocks' piece, noting:

"Investors believe that bear markets only come with recessions, and so reassure themselves that there is no sign a recession is imminent, repeating the mantra that 'economic cycles don't die of old age'. Unfortunately, this is both wrong and useless.

First, 20 percent drops happen outside recessions, as in 1987 and 1966. Second, economic cycles can be killed by a financial crash, and as the late Hyman Minsky pointed out, the longer a financial cycle goes on, the more likely it is to turn to excess and end badly. Worse, there is no reliable method of forecasting a recession, so even if it were true that only a recession can end a bull market, that isn't a lot of use to investors."

Adding:

"When everything is awesome it is best to prepare for things being a little less awesome in the future, even at the cost of missing out on some of the gains."

A few months earlier, Mackintosh's column was preceded by one  ('Do You Have The Stomach For The Next Stock Crash? ) in The Denver Post Business Section, written by Charlie Farrell, the CEO of Northstar Investment Advisors LLC,  wherein he writes:

"For the past eight years, investors have enjoyed a steadily increasing stock market. Memories of the 2008 crisis have largely faded and many investors have forgotten that sinking feeling. But if you want to avoid the mistakes investors made during the last crisis, you should start thinking bad thoughts. Yes., bad thoughts. Start training your brain and your guts for the next stock market decline. Why? Because big stock market crashes and declines happen and they pose a big threat to your wealth."

Of course, Farrell is quite correct and it's been literally known since the birth of the stock market that  all bull markets end in veritable crashes, the purpose of which is a massive transfer of wealth to the upper crust . (See e.g. George P. Brockway,  'The End Of Economic Man'). 

SO there have been endless warnings, some of which have come to pass, i.e. such as those who were correct about the October, 1987 stock crash.   But what about the more recent one in 2008? Too many members of the "dismal science" missed it, perhaps because they didn't put 2 + 2 together to grasp that years of the Bush tax cuts - taking place during de facto 'war time' - preceded it.  Add to that the fact that a bubble had been created and you had all the elements necessary for a crash. All that was needed was a 'trigger' and that was provided by the infusion of financial toxic waste known as credit default swaps. These unstable instruments (buried in bonds) found their way into everything from collateralized mortgage obligations to pension fund investments and most were classified as 'AAA' despite the fact there was no basis to do so.

The failure of the credit agencies themselves to be onto the junk bond nature of CMOs and allowing the presence of fractions of  toxic  CDS bonds in each – then designating the whole AAA - led directly to the collapse of the credit markets in 2008. The realization of their presence across the financial spectrum triggered a credit freeze then crash. (See e.g. http://brane-space.blogspot.com/2008/12/financial-black-hole.html )

Fast forward now to the latest take: that the current market may well be on its way to defying a nasty "unlucky -sevens" trend (WSJ, 'Market's Unlucky -Sevens Streak In Danger', p. B18, Oct. 18). What ate we talking about? Basically, a pattern that has held for U.S. blue chip stocks for at least the last 130 years.

Specifically (ibid.):

"For the past 13 times that a year has ended in seven, going back to 1887, the Dow Jones Industrial Average or its predecessor has suffered a sharp downturn at some point between August and November. The average downturn has been a little over 13 percent according to the research firm Leuthold Group."

The piece by Spencer Jakab goes on to note:

"The most memorable of those drops was 30 years ago. The 1987 stock market crash sent the Dow tumbling 22.6 %, its worst single day percentage loss ever, including a selloff that began earlier and wiped 36 percent off the Dow's value."

So the gist of Jakab's piece is this unlucky streak is "in jeopardy".  But is it really?

The problem with all pattern -based reasoning or templates is that there is no bearing on actual causes, and causal relations. Theodore Moois, the author of the monograph 'Predictions', for example, (p. 156), observes that the factors that most impacted the 1987 crash were the energy oscillations at that time in terms of energy prices, relation to consumption, and lack of investment in new jobs. In particular "stock market plunges manifest themselves during the downward trend of the energy oscillation and hence correspond to a downturn in the economic cycle".

Let us also note in conjunction with this that the 1987 crash occurred after a major tax cut was enacted via the Economic Recovery Tax Act in 1981.  Included in the act was an across-the-board decrease in the marginal income tax rates in the United States by 25% over three years, with the top rate falling from 70% to 50% and the bottom rate dropping from 14% to 11%.  The cut itself may not have been as toxic, but Reagan also launched a $2.2 trillion defense spending spree - effectively burning the fiscal candle at both ends.  This, I believe, set the stage for the 1987 crash.

The 2008 crash occurred after years of the Bush tax cuts which drove the deficit even higher and also:  "The 2000s- that is the period immediately following the Bush tax cuts – were the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures."  (Financial Times analysis, in 9/15/10)

What one must conclude is that while the credit meltdown with CDS infusion was the proximate trigger for the 2008 crash, the Bush tax cuts were the effective distal cause - specifically on account of the lack of investment, which itself created an "energy sink" in terms of the transactions between workers-consumers and employers.  Because many workers barely benefitted from the cuts , millions had to go into credit card and other debt to make up for the dearth in earnings. Much of this was needed for health care, and utilities. The narrow vision of these tax cuts -  like the current ones on offer (giving those making over $5m /year a $200k cut) left the jobs-energy landscape as a wasteland. Also, the bubble created - including by selling millions of sub-prime mortgages to borrowers who couldn't really afford them, paved the way to a crash.

For reference, the top marginal tax rate during the Bush years (for income tax) was reduced to 36% from the 39.5% during the 1990s Clinton Years. Over the 1950s and into the 1960s (until about 1964) the top marginal rate was at 91%, going down to 65% by the mid -60s. The low level of 50 % wasn’t reached until Reagan arrived and passed his tax cuts in 1981. (And we note here that the debt as a percentage of GDP rose to nearly 30% during the Reagan years, caused by his tax cuts in conjunction with mind boggling military spending.)

Another telling statistic from the FT study is the growth rate for investment in equipment and software for business. They note that this ranged from 5.7% a year to 9.9% in earlier decades but was reduced to 1.9% during the 2000s.  Meanwhile, “average growth in non-residential structures ranged from 1.3% to 5.7% from the 1950s through the 1990s but declined 0.8% during the 2000s.”
A fair and timely question must be asked at this point:

Why do Republican tax cuts lead, counter-intuitively, to industrial decline, stagnant wages, and finally financial collapse? The fact is that high marginal tax rates strongly correlate with economic growth.  In December 2010 Mike Kimel examined the effects of cutting the top marginal tax rate:

….real GDP also grew faster under Bill Clinton, who raised taxes, than it did under Ronald Reagan. In fact, from 1981 to the present, the period in which Reagan’s philosophies have reigned triumphant, the correlation between the top marginal tax rate and the annual growth in real GDP has been positive. That is to say, higher top marginal tax rates have been associated with faster, not slower real economic growth. Conversely, lower top marginal tax rates have coincided with less economic growth.

The positive relationship between the top [higher] marginal tax rate and the growth in real GDP is very nearly bullet-proof. For instance, it extends all the way back to 1929, the first year for which the government computed GDP data. Additionally, higher marginal tax rates are not only correlated with faster increases in real GDP from one year to the next, but also with increases in real GDP over the subsequent two, three, or four years. This is as true going back to 1929 as it is for the period since Reagan became president. In fact, since the Reagan Revolution took hold, similar relationships have existed between the top marginal rate and several other important variables, like real median income, real private investment, consumer sentiment, the value of the dollar relative to other major currencies, and the S&P 500.  

Lower tax rates in any given year are associated with slower growth rates for each of these variables, whether those growth rates are measured over periods of one, two, three or four years.

What is the takeaway here? Although Treasury guy Steve Mnuchin predicts a stock market crash if the Reepo tax bill isn't passed, e.g.

http://www.businessinsider.com/stock-market-news-mnuchin-says-crash-if-no-trump-tax-reform-plan-2017-10

The fact is that all the historical evidence points to the opposite. I already referenced the lack of investment during the Reagan and Bush tax cut years, but less well known was what transpired before the 1929 stock market crash.  Calvin Coolidge signed into law the Revenue Act of 1924, which lowered personal income tax rates on the highest incomes from 73 percent to 46 percent.  Two years later, the Revenue Act of 1926 law further reduced inheritance and personal income taxes; eliminated  many excise imposts (luxury or nuisance taxes); and ended public access to federal income tax returns. The tax rate on the highest incomes was reduced to 25 percent.

The result was a speculative frenzy in the stock markets, especially the application of structured leverage in what were called at the time "investment trusts." In September 1929, this edifice of false prosperity began to wobble, and finally crashed spectacularly in October,  1929.

Again, I submit that energy oscillations - usually as liabilities  -are also tied to these tax cuts and lower tax rates. It takes energy, after all, to build new plant for labor or even less carbon -generating  energy infrastructure,  e.g. solar collectors, wind turbines.. But if corporations merely use the money to buy back shares as a form of tax avoidance, the energy goes nowhere useful. (As Joseph Stiglitz noted this morning on 'Morning Joe').  Lower tax rates  encourage taking wealth out of industrial companies; the wealth taken out must then be "put to work." That means more money chasing "investment opportunities" (instead of real investment in capital goods and employees), leading to price increases in financial capital or real estate or some other asset.  The end result? An energy use distortion in an environment of low aggregate demand and high deficits (set to get much higher) setting the stage for a deleterious energy oscillation leading to a crash later next year.

I predict that if this Repuke tax "reform" bill passes, then we will see a monster crash (up to 40 %)  by October  of next year.  You can make book on it.

See also:

http://www.smirkingchimp.com/thread/richard-eskow/76434/orrin-hatch-s-bullcrap-on-taxes-is-exactly-that

And:

http://www.smirkingchimp.com/thread/jack-lessenberry/76454/how-the-gop-tax-bill-would-ruin-michigan

And:

http://www.smirkingchimp.com/thread/steven-rosenfeld/76431/why-arent-dems-in-congress-raising-more-hell-to-oppose-the-worst-gop-tax-bill-ever

NFL Ratings Are Lower - But Not From Boycotts Arising From Anthem Protests

Jags players in London for the Ravens-Jaguars game kneeling Sept. 24th for the national anthem after Dotard dissed players with asinine tweets.

Recall the crazed man-baby occupying the White House went on a twitter tirade back in September when  he actually demanded any NFL players who kneel in protest at the national anthem be "fired" by team owners. He also referred to such players as "sons of bitches".  

Treasury Secretary Steve Mnuchin insisted Donnie Dotard was not picking a fight, despite the orange hued degenerate doubling down on his bellicose remarks at a rally in Alabama .  Anyone  with half a brain could see he was emphatically picking a fight with the NFL and activist players. It's about all this asshole does, whether with Hillary, NFL players, the media, the courts or Kim Jong Un.. The dotard then repeated his challenge to NFL team owners and encouraged fans to stop attending until the owners take action. He barked in a tweet like the mad dog he is:

“If NFL fans refuse to go to games until players stop disrespecting our Flag & Country, you will see change take place fast. Fire or suspend! NFL attendance and ratings are WAY DOWN. Boring games yes, but many stay away because they love our country. League should back U.S.”

In the wake of his dog whistling, the conservative media  - especially FOX (FAUX) News -  provided bogus stats to try to show the TV and NFL stadium viewing audience had declined as angry fans responded to the protests.   This narrative kept on going with the same take, but yesterday - for the first time - was shafted by another enclave of the Rupert Murdoch media empire: The Wall Street Journal.

In its Business and Investing Section (p. B1), the lead story('NFL Ratings Culprit: Too Much Football') was how yes, the NFL ratings on TV have sagged (by 8-9 percent) but not from any boycotts by red state crackers. It has more to do with pro football over exposure on television, something I've been concerned about for some time.  Football, especially televised on Thursday nights, as well as on early Sunday (from London), Sunday night, and Monday night, appears to have sucked the magic from the game for many. In addition, games have grown vastly longer because of the incessant flags, penalties - something you saw with far less frequency in the 60s, 70s..

It was always a dumb idea anyway to add  another weekday game - barely four days after many teams played the previous Sunday. It simply opened the door to more injuries. And we've seen those happen, such as the Ravens' Joe Flacco being knocked out of the game nine days ago vs. Miami.  The ensuing Ravens' injury report makes the case that the Thursday night games now need to be nixed, e.g.

http://ftw.usatoday.com/2017/10/nfl-ravens-injury-report-dolphins-thursday-night-football

I agree with that and the NFL needs to tamp down its profit mongering.. There's just too much football as it is, and yes, you can have too much of a good thing. There's also television precedent for that - as the 1999 showings of 'Who Wants To Be A Millionaire' went from one showing a week to three. It was simply too much of a fun show, and the  over-sated viewers dropped off, rushing the franchise to its epitaph.

For me, I seldom watch any Thursday night games anymore unless the Packers are playing. Even then I wince with almost every down, at the possibility of some season- ending injury.

In regard to the trope that boycotts by zealous, flag- waving paper patriots have driven the ratings dip, the WSJ notes (ibid.):

"There is no significant evidence of a red state boycott, according to data compiled for The Wall Street Journal by the measurement firm Samba TV, which analyzes data from 13.5 million smart TVs across the country. Through seven weeks the share of TVs tuning in to NFL games was down 8.7 % on average in the red states while in blue states viewing was down 10 percent".

Adding:

"But when Trump started tweeting his displeasure about protests in week 3, the NFL had its best year over year ratings performance of the season and the red states were down just 1 percent. In the ensuring weeks the declines were generally even."

Quoting CBS Sports Chairman Sean McManus:

"I do think it's clear that adding 10 games to the Thursday night package and two additional Sunday morning games has clearly diluted the Sunday afternoon packages and affected the ratings. It's just simple mathematics."

True, given one will in general have 'x' things to do - Sunday or no Sunday - and one can't consume every waking hour watching football no matter how much of an addict one may be.

One of the more eye-popping aspects uncovered in the piece was:

"A recent HBO Real Sports/ Marist poll showed that 84 percent of Trump supporters  believe the NFL should require players to stand for the anthem."

This compared to 27 percent of Dems holding that view.

But this nearly factor three difference isn't too surprising given most Trumpies are inveterate authoritarians who talk a good game about personal liberty and the 1st amendment but don't really believe it.  After all, they worship at the feet of Dotard the ultimate authoritarian in the country right now - whose screaming last month  that  Bowe Bergdhal ought  to be executed as a "traitor" induced his release as a free man. The judge in the case (Nance)  correctly decided Trump's interjection qualified as "mitigating evidence" and let Bergdahl go with no prison time.  When will this asshole learn to STFU in criminal cases? Probably never.

Donnie Dotard can't seem to help interjecting his officious,  whiny toddler-ass voice into potential criminal proceedings, including the guy (Saipov) involved in the NYC truck attack. His repeated assaults on the criminal justice system cross lines other presidents have largely observed since the Watergate era..  His frustration has been fueled particularly by his inability to control the investigation into whether his campaign coordinated with Russia during last year’s election.  In other words, this turd fancies himself a dictator, as do his Trumpkin followers.

The takeaway is the Trumpkins' claim their boycott drove ratings down is poppycock. They didn't. It's just a matter of too much football, i.e. plain old over exposure and overkill. The broadcasting media (like CBS and FOX)  are merely biding their time until contracts can be renegotiated-  with pricing downward..

Democrats Locate Their Gonads And Hatch Pitches A Hissy Fit

It was delightful this afternoon to see the beet red face of Sen. Orrin Hatch on the tube - about to pop a blood vessel- as he castigated the Democrats for using a boycott. As I wrote in three previous posts it was time for the Dems now to shake off the post-election slumber and move into permanent combat mode. No collaboration with this hoodlum administration, come hell or high water.

Their display today proved they're paying attention, if not to me then to a very energized and impatient base tired of seeing pussyfooting in place of political opposition.  Hatch's hysterics are especially choice given this asshole and his Reepo pals did pretty much the same for the past  8 years. So what the fuck is wrong with Orrin? Has he got Alzheimer's or something?

To set the scene: Confirmation votes for Health and Human Services nominee Tom Price and Treasury nominee Steve Mnuchin were delayed on Tuesday morning after Democrats on the Senate Finance Committee boycotted hearings, denying the committee the necessary quorum to proceed. It was a dramatic move by the minority party to try and stall the confirmations of both Cabinet appointees.

It was just the sort of thing I had been calling for, including in a post two days ago, when I referenced a former Senate aide (Adam Jentleson)  who wrote in The Washington Post ("Senate Democrats Have The Power To Stop Trump If They Use It") about procedural measures to solidly muck up the works and slow everything to a grind.

The asshole Hatch, too dumb to get it, believed it was all about "bitterness", i.e. at Trump's, Russian assisted election win, as opposed to resistance and political warfare. So no surprise the smug son of bitch from Utah was apoplectic over his colleagues’ behavior. Know what  I say? Tough! Suck it up, maestro, and get used to more!

Here’s a choice selection of quotes from Hatch’s tirade against the Democrats.

“I don’t remember us treating their nominees this way. Assuming that they don’t support these two [Price and Mnuchin], then they can vote against them.”

Well, sure, that's on too, Senator.  But it's also nice to fuck up your overall process and timeline as well.

The gentleman from Utah wasn’t done, bloviating:

“We’ll see if they will come and do the job that they’ve been elected and sworn to do. I’m very disappointed in this type of crap, I mean, my God, there’s no excuse for it.”

Well, there's actually plenty of excuse for it, given you and your Reepo mates are simply prepared to make a Faustian deal with Bannon and Trump to shut up, while they destroy any polity as well as the constitution. So this is a way of Senate Dems delivering a wake up call, that people are paying attention to this administration and not just to their disgusting picks. (Who I have labeled despicables)

The committee chair stood up for the honor of the nominees, saying that Democrats “really shouldn’t treat dignified people who are willing to sacrifice and serve in the government this way. … This is the most pathetic thing I’ve seen in my whole time in the United States Senate.”

Dignified people? You mean this bunch of alligators Trump and Bannon intend to now fill the D.C. swamp with? Put a sock in it, Hatch.

To drive it all home, Hatch said of the boycotting members:

“To not be here and participate, that’s a total abnegation of their duties as senators, and I think it’s pathetic.”

Think what you want you goddamned, sniffing, pompous little asshole, we on the other side thought it was great. Anything to fuck your side up since you all seem to lack the will to hold the Trump fascists to any account, so committed are you to hanging onto his coattails to get your vicious agenda through.

To be clear, Hatch's posturing and histrionics  (including actually calling the Dems "idiots" for holding their ground) was a pointed attack on the asymmetric obstruction strategy traditionally employed by a true opposition party. The fact is it relies heavily on  governing and institutional norms, never exceeding what the basic rules allow. So I have no remote idea why Orrin is getting his panties in a twist. Does he wish to rescind the applicable Senate rules? Does he wish to be "king" of the Senate and just order all of the opposition to do his bidding because he (or Trump) says so?

Truth be told, Hatch's spiel might have carried some righteousness and moral weight had it been delivered by anyone but Sen. Orrin Hatch.  He's indisputably one of the biggest hypocrites in the Beltway.   He also seems not to know, or care, that another reason for delaying the votes is to do further cross checking on the nominees (Price and Mnuchin) due to press reports that suggest both have not properly completed their conflict of interests questionnaire and been forthright on their issues. (Including Mnuchin's of a $100m account he appeared to forget. As Jim Hightower put it, "maybe it was just chump change for him)

Maybe, but I somehow doubt it.

Anyway, good work, Dems. Now keep it up. I want to see more delay tactics as well as NO votes for all of these crappers. If the Repukes want them let them vote for them. That goes for you too, Joe Manchin, on the Sessions vote!


Update:

This morning the GOP Senators declared all out political war by nixing the need for a quorum to vet nominees. They are now officially in league with the other Nazi scofflaws of the Trump administration, after gaslighting the rules of  their own institution.