One of the best contemporaneous economic indicators, one that can’t be fudged or faked, is tax collections. Right now, they’re falling. From Bill Bonner at bonnerandpartners.com:
The Dow fell about 100 points yesterday.
It’s not hard to see why…
Factory output dropped the most since last August, led by declining auto sales.
Meanwhile, housing starts are at a four-month low. Bank loans are slipping. Commercial property is “rolling over.” Consumers have tapped out. And the Fed’s GDP growth estimates are getting lower and lower.
But the biggest deal is that tax receipts are down, year over year, for the fourth month in a row. Taxes are real money. They’re not fake news like unemployment and inflation statistics.
When people earn less, they pass less in taxes. A decline in tax receipts means that something real is happening in the economy.
The last time tax receipts fell like this was in 2008. You know what happened next.
Meanwhile, evidence mounts that – outside of dividends – investing in stocks is rarely profitable.
According to a paper by Hendrik Bessembinder at Arizona State University, even without accounting for fees and expenses, roughly 70% of stocks deliver lower returns than the Treasury bill (considered to be one of the safest assets).
It’s part of the reason why, according to research firm Dalbar, only roughly one-quarter of active fund managers beat their indexes.
Winning stocks are rare.
We have long suspected that fund managers avoid slipping behind the indexes – which they use as benchmarks for their performance – in the simplest possible way: They buy the index!
This – and the fact that the big stocks in the index are the ones covered by the fake-news media (that is… by the popular press) – tends to boost the few popular stocks over the many unknown ones.
This also gives investors a false impression. With the index rising, say, 10% a year, they say: “If I buy ‘stocks,’ they should give me a 10% return.”
But a 2015 paper – “Why Indexing Works” by J.B. Heaton, Nicholas Polson, and Jan Hendrik Witte – revealed that the typical investor does not begin at zero with a 50-50 chance of beating the indexes.
To continue reading: The Last Time This Happened Was in 2008