No, Not Every American Is Crowing About The Great Bull Market

The endless paeans to the grandiose Bull,  market that is,  abound in the financial press,  see e.g.

https://www.wsj.com/articles/what-can-stop-this-bull-market-1534881350

But also usurp huge spaces in the regular press (Denver Post, p. 1A yesterday)  - and enough to make anyone with sense bring up his or her breakfast. Yes, the DOW (as well as NASDAQ and S&P 500) have reached new heights as well as duration, but do none of its worshippers in the media grasp how it's been jiggered to perform better?  See e.g. http://brane-space.blogspot.com/2018/07/trumps-asset-bubble-economy-based-on.html

And yes, some reports have also rubbed it in about those in the "ordinary middle class" who have been left out while the "rich get richer".   But no one who pens such balderdash goes on to explain why.  For example, that many in the ordinary middle class- squeezed by parental care and youngsters' college costs - are in no position to partake, given they have little or no disposable income, i.e. like the rich.  Hence, the lesson many learned from the 2008- 009 financial crisis and stock crash is don't buy into the Wall Street casino if you can't afford to lose.

That was brought home even more poignantly on the local evening news two nights ago when the economic crunch affecting many in our (EL Paso) county was discussed by a financial expert. The issue was sky high rents which have been rising into the stratosphere even as home prices have also soared (we're getting the excess demand from the overly pressured Denver market) and the accompanying wage stagnation.

According to the finance specialist appearing on KOAA-TV, the average renter in our county is in a retail service job and earning barely $10.22 an hour when that wage needs to be at least $20.65 an hour to make most rents and not pay more than 35 percent of income for them.   This bad news also comports with the enormous pressures on household mortgage debt  and auto loans - which have now pushed U.S. consumer debt to $13.3 trillion   (WSJ, 'Household Borrowing Hits High',  Aug. 15, p. A3)

We find (ibid.):

"Debts rose by $82 billion in the second quarter driven by rising mortgage, credit card and auto loan balances, according to the Federal Reserve Bank of New York's quarterly report on household debt and credit."

Adding, ominously:

"Total debt is now higher than before the financial crisis when widespread defaults, especially on mortgages, contributed to the longest and deepest recession since the Great Depression. After paying down debt through 2013, in aggregate, consumers gradually began to borrow again and household debt is now nearly 20 percent higher than five years ago."


And nattering finance scolds and nabobs wonder why more middle class blokes are not in the stock market?  Especially when "aggregate household debt grew for the 16th quarter."

Another worrisome aspect:  "The total stock of outstanding mortgages climbed to $9 trillion, the highest level since 2009."

What gives? Well it's clear that people - too many in the middle class and lower- are treading water and going under with wage stagnation, so are trying to keep their standard of living by taking on more debt.  Epitomizing this pathetic situation is the news that one actually finds too many employees offered: The Promotion That Comes Without the Pay Raise,  e.g.
https://www.wsj.com/articles/the-promotion-that-comes-without-the-pay-raise-1534944636

What appears to be counter intuitive now that so many Millennials -  who've never experienced a bear market -  are in the stock market now and absolutely blase about the possibility. (41 percent of households age 35 and younger own stocks now compared to 23 percent in 1989)   In the words of one young Turk quoted in a piece in yesterday's Denver Post:

"It's going to sound terrible but I'm actually looking forward to the next downturn."

Well, you might regret it if the stocks (or mutual funds) you own turn out to be duds, leaving you waiting two decades (after 40- 50 percent losses) to reach the breakeven point.

Given all the above it's logical to point out that even the labor participation rate remains low because of the pathetic wage increases. Sadly, it makes more sense for many people just to grab disability or other benefits where and when they can than to plod away in a job that won't pay even a basic rent. So why not instead opt for Medicaid and a Section 8 housing voucher?   As WSJ columnist William Galston has pointed out ('Wage Stagnation Is Everyone's Problem', Aug. 15, p. A15), the "labor share has in fact declined".(The 'labor share' is defined as the share of national income going to working and middle class Americans).

Galston in his column considers several reasons, including the decline of union membership, but mainly points his finger at globalizaton, observing:

"In a 2013 paper for the San Francisco Federal Reserve Bank economists found as much as 85 percent of the declining labor share may be attributable to increased import competition as U.S. producers responded by shifting production to countires with cheaper labor."

And oh by the way, that shift included tech specialists, and call agents as well whose jobs were shifted to Indians in Bangalore or Delhi.

Another less cited source of the declining labor share arises from automation.  As I pointed out, citing a WSJ piece, in November of last year:

Two thirds of large global companies  expect to automate some or all of their finance department tasks over the next two or three years, according to new research by Hackett Group Inc. Hacket's report is based on benchmark and performance studies at hundreds of  large global companies.

Adding:

The new technologies are designed to cut costs, liberate workers from time consuming repetitive tasks and - in many cases - reduce finance and treasury department employee numbers."

In other words, corporations have found human employees to be more like drains on their profits than useful contributors.  Benefits alone clip the profit margins especially for providing any health care, or even sick days. Given these monetary limitations - and the fact humans get sick and machines don't  - who wouldn't  dedicated capitalists manning the corps want to ditch all the bio-based flesh and blood workers for machines and software.?

Jim Hightower provided even more insights that I also cited:

"With corporations socking away massive profits and the labor market still tight why are worker's wages stuck at miserly levels? One big reason is that corporate boards and CEOs have their heads stuck in a dreamy future. Nearly every economic sector is spending vast sums of money on workers p just not on human workers.

While few Americans are aware of it, bosses are investing in hordes of sophisticated autonomous robots powered by a cognitive technology called artificial intelligence. Instead of paying a decent wage to you, corporations are buying millions of these cheap, human-esque thinking machines in order to take a shocking number of jobs away - well, from you!"

Of course, in the midst of all this one will always find cocklemamey fantasies churned out by the delusionary elements of the media such as FOX News or some of its WSJ op-ed counterparts. One example: Phil Gramm's 'The Myth Of American Inequality" (Aug,. 10, p. A15), writing such bollocks as:

"The bottom 90 percent of German earners pay a share of their nation's taxes on income 77 percent larger than that paid by the bottom 90 percent of Americans".

Failing to note the Germans paying those high taxes get an enormous return including for top notch medical care (no worries over bankruptcy and pre-existing conditions), child care, generous unemployment benefits and generous pensions - oh, not the 401(k) kind Americans are forced to pay for on their own!)  Gramm's dreck was also scuttled in a subsequent WSJ letter from Martine Durand ('Many Data Sets Show High U.S. Inequality', Aug. 24). Ms.  Durand, the chief statistician and Director of  the Statistics and Data Directorate of the OECD wrote:

"The  claims by Messrs. Gramm and Early that the OECD  measures overestimate U.S. inequality are unwarranted.  The OECD relies on existing international standards and on source most suitable for international comparison."

Then today, more cheerleading devoid of reality touchstones, e.g. 'The Good Times Can Roll On', WSJ, p. A15,  where Edward  C. Prescott and Lee E. Ohanian wrote:

"The emergence of better job opportunities has reduced the number of people  on disability."

Well, maybe, but only because hundreds of thousands of disability CLAIMS have been tied up in the respective bureaucracies.  For example, we learned two days ago ('Backlog Stalls Veterans' Appeals', WSJ, p. A5):

"As of August, 2018, the appeals backlog (for VA disability) stood at about 238,000 according to VA data'"

The basic reason for so many appeals and their backlog is because the process itself is complex and difficult-- designed to thwart easy access to  disability monies. As the article notes "many veterans claim multiple injuries each of which requires its own decision."

Meanwhile, tens of thousands of civil  (e.g. Social Security Admin.- related) disability claims are tied up here in Colorado and other states - preventing genuinely disabled workers-citizens, as well as economic "refugees",   from gaining access to benefits.  In the latter case, the "refugees"  have made the rational determination they are on more secure footing with disability benefits than toiling in a low wage job for which they are getting chump change and can't even afford basic food or rent.  If the jobs for which they are qualified paid more, they likely wouldn't need to go the SSA disability (or for that matter, Medicaid)  route.  But the sheer number of claims puts the lie to the WSJ's "good times"   claptrap.

William Galston for his part is clear on what the solution needs to be (ibid.):

"There is only one way to go. The high earning Americans who have done so well in recent decades must pay higher taxes to support the portion of the workforce that is falling behind. This isn't charity, nor is it welfare. It's simple common sense, or self interest - rightly understood.  Because an economic system that fails to offer broad gains will end up with disruption."

Or worse, with extinction. So basically, Galston is proposing  - like FDR with his multiple programs after the 1929 stock market crash- of saving capitalism from itself. But perhaps the solution begins and ends with ditching American 'cowboy' capitalism for the more humanized manifestation of Rhine capitalism  (Google!)- say as practiced in Germany and Scandinavian nations.

See also:

http://brane-space.blogspot.com/2016/10/did-you-know-poor-have-gained-most.html

And:

http://www.smirkingchimp.com/thread/paul-street/80803/trump-corporate-media-are-both-enemies-of-the-people

2016: A Year Of Climate And Political Upheaval

As usual the million or so in Times Square rang in the New Year with much fanfare as well as endless rock groups and the usual funny hats - this time highlighting 'Planet Fitness' .  When the big ball hit bottom - Time T zero - the crowd erupted in jubilation and the faces betrayed an expectation that this year would truly be happy, as opposed to yet another downer.

It's always an expectation worth having, but seldom realized on the global level (though it may well be for the favored few on the individual level).  What I want to do here is to look ahead and see what might be coming our way in the realms of the economy, climate, global policy and  national politics. In general I foresee many more upheavals, especially as climate change continues to accelerate and ISIS seeks to make a 'last stand' with its "caliphate" nonsense.


Economy:

Most Americans are already aware the Federal Reserve finally raised interest rates by a quarter of a point last month,  after nearly eight years of near zero rates.  As the rates increase by four times or more in the coming year the markets will be rattled as stocks will no longer have the virtual "free money" from the Fed's bond buyback program (quantitative easing) to rely on.  Coupled with the higher interest rates investors will have to contend with dropping oil prices as the glut continues, as well as volatilities in the commodities markets. Stocks, as the WSJ noted two days ago are already priced sky high so there may be few places to put money if people want more yield.

I don't foresee a recession or anything but people ought to be aware of the underlying sources of volatility and perhaps be prepared for a market correction later in the year, likely October. Smart citizens will use whatever bounty they get  -from more $$$ saved on gas, or raises - to salt savings away, pay off debts and not take on new debts.

Climate:

The freakish weather with skewed jet stream and effect of El Nino last month ought to have alerted people to what lies ahead, especially this spring. Alas, the flooding,  F4 etc. tornadoes in December 2015 will be just a prelude to events this spring. Also, expect a summer like no other before with extended heat waves lasting up to two weeks or more. People will be pining for the "balmy"  days of December - at least those in the eastern U.S.

Sea level rise and its threat to small island nations, e.g. Vanuatu, will continue especially as the rate of glacier melting is increasing. According to a paper published in Nature last month by Kristian K. Kjeldsen in concert with 15 other authors, the Greenland ice sheet has lost an astounding 9,103 gigatons since 1900. Most importantly, the rate of loss has been increasing with a doubling of annual loss between 2003 and 2010.

The complex work entailed using a merger of multiple information sources, including: distinct marks let by retreating glaciers, extensive aerial photography, and satellite observations to infer the total mass loss of the ice sheet. The paper indicates the glacier retreat and ice loss was incepted around 1900 at the end of a cooling period as human -caused global warming kicked in, e.g. with the advent of the automobile and much more fossil fuel burning, especially from coal.

Global Policy:

Global policy will focus mainly on the terror bogey posed by ISIS. The recent victory by Iraqi troops in driving these bugs from Ramadi will be used as a pivot point to further oust these rats from their burrows, as it should.  At the same time, nations will ramp up  security, and right wing groups in Europe - including Marine Le Pen's National Front - will continue to howl as a million new refugees from the Middle East pour in. At some point the EU may realize that its Schengen accord simply can't work since it allows terrorists to easily pass through borders (And has also allowed gun running, mainly from Slovakia, into Western Europe).

Iran will also be a focus as the Obama administration is already putting out new sanctions for perceived infractions  in the recent nuclear deal. (Iran has protested that any such imposition of sanctions is a violation by the U.S. of the agreement).

Meanwhile, at home there will be pressure to increase NSA mass surveillance and have tech firms cooperate by allowing "back door" entry of the security state into much used devices and apps like 'What's App'.  But this will be strongly resisted. Also, as WSJ columnist William  Galston noted in a recent column:

"We remain the land of the free, but are we still  the 'home of the brave'?"

Well, maybe not so much if we allow ourselves to continue to be gamed by the terror card, failing to appreciate the risk is far greater that we will be felled by cancer than by a terrorist's bullets or bombs.  As Galston also points out:

"During the past decade seven times more Americans died from lightning strikes in the U.S. than at the hands of Islamic terrorists".

And as I wrote in a post last month, more than 200,000 Americans have been killed by their fellow citizens using easily purchased weapons (such as the AR-15)  compared to only 48 killed by terrorists. Based on these figures, it's time we got our perceptions in order - meaning in accord with reality.

National Politics:

This will likely be as big a source of upheaval as the climate events facing us. The Republican Party itself faces internal upheaval fomented by the rise of populist Donald Trump - who, if not brought back to Earth in the caucuses and primaries - could spawn a contentious convention in Cleveland this summer.

Trump is an enigma as well as an aberration to Republicans, which has caused a certain segment to develop the conspiracy theory that he is really a "Hillary Trojan horse" - to blow up the GOP nomination. This is based on the records showing his having voted for Obama in 2008, and also photos showing the Clintons at his wedding.  Hence, the GOP conspiracy theorists distrust that Trump is truly one of their own and not a Clinton "plant".

All of this may be much ado over nothing. Trump, despite his rise in the polls, still has to translate all that populist energy and his poll numbers into actual primary and caucus wins. But can he? Many Trump supporters interviewed in recent days say they are not sure whether they will caucus in Iowa. That is where the bear sit with the buckwheat, so to speak. Caucusing is not like just pulling a lever in a voting booth, it entails going out on a likely frigid night in February and meeting with other supporters of different candidates to talk and jaw about good points and bad of the respective candidates then coming to an agreement. It can last for hours, and while Trumpies may love yelling at his rallies it remains to be seen if they will actually caucus.

In addition, recent reports (in the WSJ, and TIME)  disclose that it is actually Ted Cruz who has the ground organization in Iowa and NH. It is his team that is going door to door to make sure people will actually show up to caucus, or cast ballots.  Trump, despite his bluster and polls, has no similar ground game so rational observers see him having a hard time winning.

In terms of the Democrats, Bernie Sanders needs to win in Iowa and New Hampshire to engender any kind of momentum and "upheaval". Right now the signs aren't good, and the ridiculous low profile debates sponsored by the DNC haven't helped him gain as much name recognition as he'd like. It appears quite evident that DNC Hillary supporters like Debbie Wasserman-Schulz realized for "Hill" to prevail they needed to keep the Dem debates to a minimum and also at nonsensical times, like Saturday night (for the last one) and on a Sunday with NFL Playoff games for the next.

But we will see. Despite the efforts to keep Bernie at bay, none of it may work if he can catch fire especially with more African Americans.

On that note, Happy New Year! At least let's hope it's happier than the last!