Mind Blowing, by the Northman Trader

There are a lot of paradoxes in financial markets and in the economy at large. From the Northman Trader at northmantrader.com:

We’re in one of the longest economic expansion cycles in history and nobody’s happy. It’s mind blowing. You’d think 2018 would have people dancing in the streets. 3.7% unemployment, record stock market prices. Well the ladder until recently that is.

So let me rephrase:

What happens if you have record buybacks, record dividends, and record earnings but 89% of assets yield a negative return in US dollar terms?

No really that’s just what happened:

The short answer is: Nobody knows because it has never happened before.

According to $DB: “A whopping 89 percent of assets have handed investors losses in U.S. dollar terms, more than any previous year going back more than a century”.

Mind Blowing.

No wonder The Fed Crying has Begun. Bulls are now dependent on a big year end rally to turn the ship around. And a technical case for that can certainly be made. But they only have a few weeks left in the year and they better hurry otherwise they owe everyone a big apology and can kiss their year end bonuses goodbye.

But that’s markets in 2018. It’s not reflective of what has happened to the middle class over the last 20 years.

Summary: Utterly screwed.

How else to square headlines such as these:

America’s 1% hasn’t controlled this much wealth since before the Great Depression

1 in 3 Americans have less than $5,000 saved for retirement

65% of Americans save little or nothing—and half could end up struggling in retirement

I could post more links, but the message is clear: Wealth inequality is vast and nobody’s happy.

If you don’t think so have you looked at our political discourse lately?

If things are so great why is political discontent so high? Many will want to blame Trump. But he’s an individual, one perhaps that has ruthlessly taken advantage of the underlying sentiment. He’s not created the disease, perhaps one can argue he has amplified the symptoms for his purposes, but the disease was already there and seeded the stage for his arrival.

I’ve been around the block a while and I can’t recall seeing people ever this frustrated when things are supposedly good.

My point on twitter recently:

There is nothing in economic cycle history that suggests that such low unemployment rates are sustainable. If anything history suggests a big turn is coming.

But not to worry here’s Janet:

“Keeping the U.S. economy near full employment is lifting pay for unskilled workers and helping ease inequality in the country, former Federal Reserve Chair Janet Yellen said. “I’m tempted to say there isn’t a whole lot central banks can do about inequality, but there are some options, like following policies to keep the economy as close to full employment as possible, she said.”

2 points here:

One: Lifting pay for unskilled workers helps ease inequality. What planet does Janet live on? CEO compensation has sky rocketed again leaving workers far behind. Indeed CEOs now earn 312 times the average worker’s wage:

You really think some basic income increases on the low end is going to make even anything close to a dent in this ratio?

Especially since the question of rising costs and inflation are completely void in her argument. If you have some basic rising wages for workers and now inflation accelerates the net effect is exactly what?

Well, based on the data here’s your answer:

Zilch. No sign of improvement. So I frankly have no idea what Janet Yellen is talking about and perhaps she doesn’t either.

Two: There isn’t a whole lot central banks can do? Please. Central banks, with their extreme low rate policies benefitting the asset classes and punishing savers and retirees have greatly contributed to the record expansion in wealth inequality.

Only half of Americans actually own stocks and the wealthiest own 81% of their value. The rest? Left behind hence the headlines above.

We’re at the tail end of a long economic cycle and wealth inequality is the worst it’s been in modern times. But keep telling yourself inequality is getting better. It’s not. It’s a tragedy what’s happened to the middle class, the countless millions who have no retirement, no savings, nothing. This happy talk by Yellen is offensive as the Fed has contributed to all this. They’re not all to blame, but they’ve had a part & refuse to acknowledge it, instead they want to take credit with the consequences unaddressed and not having played out.

The consequences will only come truly to light during the next downturn. To say that wealth inequality is improving at the end of a cycle is to be willfully blind to reality and the next downturn. People who have little to no savings when things are at their best will be in dire straights when things turn.

And if the end of a cycle is the measuring stick for success then this cycle has been a failure. We see it in the economic statistics and we see it in the country’s politics. Division, resentment, and anger.

I wish it was not so. We, as a society, can’t improve it if we can’t even have an honest and realistic debate about it.

But there’s no leadership on the horizon.

The Fed? “There isn’t a whole lot we can do”.

Congress? “We just gave the top 1% and corporations a massive tax cut”.

Mind blowing.


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