The market is pricing in a lot of “Everything is Awesome”. Reader Jason Leach, CFA, asks “Is all this awesomeness, real or fantasy? Has it been pulled forward?”
Pulling Awesome Forward
What follows is a guest post from Jason B. Leach of Fusion Point Capital. His title is Pulling Awesome Forward.
U.S. markets have “celebrated” the Trump election, with the S&P 500 rising ~8% after a quick ~4% drop pre-election (and much deeper drop in futures the night of the election). There are quite a number of themes, positive and negative, continuing into the new year from 2016. The “positives” – infrastructure spend, tax reform, healthcare reform, and deregulation – have built a relentless bid, or scared off sellers…for the time being.
The “negatives” – dollar strength, dollar scarcity, global debt bubble, Fed divergence, stress in European and Chinese banks, Yuan devaluation, rising populism in Europe (with French, Italian, German elections around the corner), low but rising probability of Euro-Exits, protectionist leanings (Smoot-Hawley tariffs contributed to a 66% decline in global trade from 1929-1934), and U.S. equity valuations at the third highest level ever (median stock on the S&P 500 at 98th percentile, and the all-time highest valuation for the index when including the enormous amount of corporate debt growth over the past decade) – are relegated to the dark recesses of pre-election…pre-light.
There are myriad estimates of what Trump’s policies could add to GDP and thus corporate earnings. If these policies are well thought out and passed quickly, no doubt there will be boosts. But, and there are several big “buts” here, with the current state of divisiveness, every issue is “third rail” and unless Republicans are willing to use the nuclear option (reconciliation where simple majority passes in the Senate) like a tactical weapon (i.e., repeatedly), the “positives” being pulled forward into today’s market pricing may take many more moons than anticipated. And, as detailed in iterations of Trillion Dollar Sam, these deep structural problems are decades in the making and will require more than outpatient Trump surgery in the first 100 days to rectify. 
The Trump election is seen as the hand off or inflection point from monetary policy to fiscal policy. Significant infrastructure would have been nice…5-6 years ago before the national debt rose another 33% to ~$20 trillion (missed window), and before the Fed started a hiking cycle. If infrastructure is somehow passed this year, and employment and wages continue to improve, the Fed could be forced to move faster. This could contribute more to dollar strength (along with repatriation, a potential border tax/tariff, and dollar shortages in Europe and Asia). Fed hikes (particularly moving the 10-year above 3%) and a continuation of the bull market dollar move could ameliorate the benefit from infrastructure spend, tax fixes, deregulation etc., or worse, invert the yield curve (historical 9-month to 1-year lag to recession), disrupt markets (more on this below), and put a pin closer the $231T global debt bubble, where dollar denominated debt approximates $57T. Remember, the last two major bull market dollar moves ended in crises in Latin America in the mid-late ‘80s, and Asia/Russia in the late ‘90s.
S&P 500: Gimme Three Steps
Every recession has been preceded by a significant increase in Fed Funds, margin or reserve requirements – tightenings. And as my colleague Arun Chopra, CFA CMT notes, major market downdrafts can occur after “3 steps and a stumble”. Some argue that 75-100 basis points, or 3-4 increases is not significant, but it comes off the zero bound and follows a 25% increase in the dollar. In Arun’s chart below, note the interesting “dollar tightening” perspective on this tightening cycle. Link to content here.
- From late 2011 through late 2015, the S&P 500 glided up on Fed & BOJ QE-induced auto pilot.
- Since late 2014, the dollar has risen 25% and the Fed has raised the Fed Funds rate twice – 3 effective tightenings.
- These three tightenings did not result in market declines.
“Three steps and a stumble” posits that if markets endure three hikes without declines, they are vulnerable to a substantial or serious setback possibly on the fourth hike. Interesting perspective.
And, below is another chart from Arun contrasting the 1980s rate environment, valuations and S&P 500:
- At Reagan’s inauguration, PE10 was 8.6x and 10-year Treasury yields were 14.6%.
- From ’81 to ’87 markets witnessed a 50% decline in rates, and a 100% increase the S&P 500.
- Earnings growth began to take off after 8 years of “real great rotation” from fixed income to stocks.
Today, the S&P 500 PE10 stands at 27.9x and 10-year Treasury Yields at 2.47%, pretty much the opposite scenario. A great rotation from here would be much different in a debt laden world.
The euphoria in markets is based on a seismic change in policy. The questions are on timing, efficacy, and whether the Fed tightening cycle overcomes any benefits. And, the environment today is much different than the 1980s, and just ten years ago.
The market is pricing in a lot of “Everything is Awesome”, but has all that awesome, real or fantasy, been pulled forward? We will see. – Jason B. Leach, CFA
Mish Comments
Thanks Jason. That was an outstanding set of graphics and text. Here’s one more chart from Quandl.Com on the 10-year Shiller P/E.
History shows the 10-year P/E is at one of the most stretched valuations in history, exceeded only by the dot-com bubble, housing bubble, and 1929.
Not to fear, other than P/E 10, trade wars, real wars, robots, protests, terrorism, and bond market bubbles, “Everything is Spankin’ Awesome”.
Mike “Mish” Shedlock
So I’m a little slow.
What does this mean for Long dated Treasuries?
What does this mean for Stocks?
What does this mean for Gold?
What does this mean for junk bonds?
Everyone is guessing but I like gold and would rather buy treasuries than short them
The lowered tax rates are what’s driving the stock rally and bond market selloff. I saw one analyst who claimed companies were expecting up to 100% earnings increases. If that is even remotely true, the stock gains are justified and the P/E ratio fears are unfounded.
I suggest everyone ignore the political screaming and look at numbers only. I don’t think we know what will happen yet, but investors always anticipate to beat the crowd. You will be late to the party if you don’t make the early bet. Fine by me, but maybe not you.
The train allegory is unsubstantiated by historical reference and fact. Another “answer in search of a {right wind] answer question. [Been doubling down on that lately.]
The {again] trojan horse assertion that this “third rail” of politics is somehow different than history.
Tell you what, I don;t have time for your child’s play substituting for fact. Enjoy your “fluid facts” as you start w/ CHILDISH RALLY #’S. PLEASE LET US KNOW WHEN THIS LAST HAPPENED ABSENT A DEMAGOG? Immature factual ignorance awaiting the next.
Pretty funny when people “like” themselves, right, mwm?
“Everything is awesome” ?!
Reminds me of Wilson’s campaign slogan… “He kept us out of war.”
Btw… Wilson also used the campaign slogan, “America First.”
Be afraid, be very afraid.
Good catch!
“America First” to jump in where we have no business to rescue foreign bond holders.
To me, those charts show what a spectacular failure Bernanke/Yellen’s neo-keynesian policies have been. Trillions in new debt, interest rates manipulated to zero (or defacto zero), zombie banks all over the place … and really nothing meaningful to show for it.
A financial system that collapsed under too much debt, now has even more debt and far fewer jobs that can pay any debt.
And a war monger government is drawing red lines all over the middle east and the pacific ocean …. only to see opponent after opponent laugh and ignore the line.
Now this same failed system is going to borrow even more to spend under the direction of people with a proven record of failure? Same bad input, same bad process — we all know it will produce the same bad result.
Drastically smaller government, break up the mega-banks … and most importantly restore a system of meritocracy. No more promoting losers based on race (obozo), gender (hilary) or poiltical connections (list of big bank CEOs here).
Always bet against the corrupt central planners. Never bet against Main Street America
“Always bet against the corrupt central planners. Never bet against Main Street America”
Hope you’re right. Historically, totalitarian corruptocracies seem at least as likely to hang on until overran from the outside, as they are of being overturned for something better from inside. Contemporary Europe being the most recent example.
Hitler and Khmer Rouge both “won” in the short term — then imploded. The EU and Hugo Chavez both appeared to be winning in the first decade of stupidity — Venezeula and Europe are now imploding. Central planning doesn’t work.
Lets pretend like no one knows about the massive debt bubble in centrally planned China…. shhh!!!
As for the USA… if you tell me you spent $4 trillion and manipulated interest rates down to zero for a decade, but we didn’t even get a free toaster oven out of the deal, I would call that a failed policy.
This so-called bull market is long in the tooth.
Anyone who thinks Trump can save a failed economy that was kept on life support for nearly a decade by QE, ZIRP and massive debt accumulation is delusional.
I have an eerie feeling that we’re going to see another financial meltdown on Trump’s watch. Perhaps a man-made controlled meltdown to let some air out of the bubble. And what better way for the establishment to sink their teeth into Trump and to teach his anti-establishment supporters a lesson? If the economy tanks Trump will no doubt get blamed. The American people will buy the media’s story and are generally too stupid to figure it out on their own. There are just too many powerful interests out to destroy Trump’s legacy. And in the end power settles everything.
(1) We didn’t buy the media story the last year or two — not buying the next version either. Of course the establishment will continue to blame Trump, what else have they been doing?
Someone like Trump never would have been elected if things had been working before him.
Is there anyone with a defective brain cell that actually thinks 20 more years of ZIRP/QE will have an outcome different from the last 10 years? Anyone check on how Bernanke-nomics are working in Japan after 30 years?
(2) We sent Trump to “fix” Washington DC, but it depends on what your definition of “fix” is. Sometimes, it means make things better. Sometimes, the best way to fix things is to break them the rest of the way. Who knows if Trump understands which definition applies now.
But we are not going to trust McCain or Pelosi or Clinton ever again. George Soros is just an white version of Louis Farakan with a nasty Hungarian accent.
The world’s economy is “dead men walking” and Trump might moderate that, but due to the disruption of “business as usual” may make “America first” down the drain. Regardless Trump will be blamed for all pain and overlooked for any credit of positives.
The real threat is not the failing economy but how it is “used” to either enhance or destroy our remaining liberties. I think we know which direction has momentum and it’s not good for freedom. But at least we will have self driving cars for those who are allowed and have any place to go.
Ever since the US markets stabilzed after the January 2016 “correction”, it had been suspiciously steady. With the S&P at about 26 times earnings, and all the leverage, something has to give after theTrump unsupported Trump runup. I don’t want to do the swing trading anymore, so other yhan a couple of utilities that we hold, its all cash and theres lots of us cash people out there.
That’s where I am, for better or worse. Every investment choice I have made thus far has been WRONG….for twenty years. No reason to think I’ll do any better this time. I do know that I am done buying at the top….but of course my buying is the only true way to determine the top. I’ve done it every time. It’s bad enough to get sucked into the Ponzi, but to be the LAST one in…every damned time, is just depressing.
I feel your pain. I was just writing how the first two years I became interested in markets, I was an absolute statistical aberration. No matter what I did, I lost. Lost and lost and lost.
I’ve often used it as an argument against random walk and the market being a coin flip. Any person new to markets tends to get it all wrong, all the time.
It’s also why I tell my friends, don’t try to trade it. Be an investor. Just buy on the way up and buy on the way down, and leave the in and out trading part to the few people that are actually good at it. (which are rarely the same people that insist they are good at it).
Unfortunately you don’t see the market for what it really is. The purchasing of very small pieces of real businesses. Having lots of people working their asses off for you while you reap the benefits. (of course at the risk of what value you bought those people. I like to think of them as my ‘lil doozers (see Fraggle Rock).
Do you really believe you are buying part of a business? Unless they are dividend paying, I would say NOT given the history of many stock holders (like OLD GM)
Yes,
Legally my comment stands 100% correct. Which does not mean you are protected from all consequences nor should you point to one example among thousands, something that can be done just as easily by pointing out the negatives towards 1,000’s of private companies for whom the owners suffered significant consequences. Publicly traded companies are all required to file 10Q’s and K’s and a whole bunch of other reports to inform their owners (shareholders) of the condition of the company. Just being an .000001% owner does not make you management.
As for dividends, I don’t like them and prefer equities that do not pay them.
Now of course you would NOT, because you have the understanding of markets of a 10 year old who is having a temper tantrum because you are trying to give it strawberry ice cream. In your own words “I don’t understand this stuff”
Nonetheless, purchasing equities is the legal ownership of a piece of a company. There is nothing to argue. Accept it if you wish, be foolish if you wish. It changes nothing about the actual fact.
If a company is profitable, do you share in the profits? Tesla, Amazon, CAT? While I am an ignoramus about stocks, I DO KNOW that I can only sell them for what someone else is willing to pay, regardless of the asset value of the company they represent or their REAL profits, and that some of the fastest growing valued stocks have NEVER made a profit. What I DO KNOW is that stocks are a poker chip, that in and of themselves have NO VALUE beyond what you can tempt someone else to pay for them. I will not say that a person is foolish for doing so as we see many people gain incredible wealth from them, just as casino owners and some professional gamblers do at their games of chance. But do not tell me you OWN a part of the company, unless you share in its asset value as well as its liabilities. The price of stock reflects NEITHER. 26 times earnings, 10 time earnings, what is the value of what you own?
I OWN my company…all of it, assets AND liabilities. People are confused as to what OWNERSHIP actually means.
I must say, I truly admire your insistence to be 100% incorrect. Your 20 year losing streak participating in markets, which should at worst be a 50/50 bet, is becoming very self explanatory.
I think if you are going to debate an issue, it is best to believe in what you say. Admittedly I have never made money in the markets and have similar luck at the casinos….and the lottery for that matter. My prosperity has come from OWNING my own business, INVESTING in MYSELF. You can take your path and I my own and both still see success I guess. The issue of ownership is not all that important as simply the understanding of perceptions. My preference is for true ownership of assets rather than potential profits…the return OF my investments rather than the return ON them.
My personal belief is that gambling, especially when it puts the entire world economy at risk, is not a good thing, regardless of how many may get rich for nothing in the process. People working their asses off so others can “reap the benefits” is not a sustainable path if too many attempt to participate in the taking over the making. There are plenty who are lined up right now DEMANDING to be compensated for nothing, the “entitled”, and as their numbers along with those profiting from their “bets” continues to grow, that balance will prove lost.
My perceptions of the world have changed a lot since I was ten years old. I was much more idealistic back then, but after seeing this surge and purge system of economics driven almost entirely by speculators, and the resultant destruction of people’s lives, I can help but question its entire premise.
“. …there’s lots of us cash people out there.”
JPMorgan puts it at about approx. $12T presently sitting in cash accounts across the globe.
https://am.jpmorgan.com/blob-gim/1383387362150/83456/MI-FB-PRINCIPLES_Q416_r2.pdf
Nobody really knows what they’re doing. Flip down to panel 11 on my link and it shows how awful the average investor is doing over 20 yrs worth of investing (1996-2015). I couldn’t just grab that one as the link scrolls for on for 28 panels but it is very interesting.
I’m doing about 6.25% which rates me slightly better than a diversified bond holder. I took a little more risk though, something I have less appetite for nowadays.
Everybody is moving to passive (index) investing? Great, I bet the random walk theory will fail now that the churning of active investors reduces volatility. The risk taking is itself the creative destruction needed for growth.
If my company is in the S&P 500, my ticker symbol WILL be bought by the street, no? Why then should I, as CEO want to be trying anything new or innovative? Isn’t that risky? I want to be PASSIVE IN MANAGING the business to match the passive investment climate. Let the robots figure out that I belong to their passive index and they will buy my ticket. I do nothing and get rewarded for something that used to require my risk taking.
There is something telling to me that so many people see it to their advantage to invest in others more than in themselves. I realize this is a very generalized statement, but there seems to be some ultimate belief that IF we were ALL smart, NONE of us would work and we would all simply set at home clipping coupons for a living. I found my prosperity in investing in myself. Yes it was very hard work, so I assume that is the true arbiter, easy money, is always good money and that labored for is bad.
Madas.
The value of your company changes as well. The value of the guy who owns 10 retail stores spread out throughout malls in his state, the value changes as well. When interest rates change his companies value changes, if he imports his goods and currency changes so would his perception of his companies value. It’s just these companies are not puclioc and that change in value is not transparent, but when the stock market crashed those companies values dropped, when there was a recession, dropped as well. Just not transparent. That is the only difference. Public companies value changes in front of your eyes.
As for stocks being ownership. There is no argument. There is not a lawyer, accountant, or judge that would disagree with me.
Other point would be about buying companies and equities to diversify risk. Most people already are well invested in their primary work. Nothing wrong with having your risk spread out elsewhere.
Time for dinner…
Re: Old timer’s erie feeling…
No offense intended, but you sound like all the readers who were sure the elites (who ever they are) would never allow Trump to win. Where are they now? I’d like a humble admission of failure.
Control your emotions (that is what a feeling is). To be a successful investor you have to lose the fear of missing out, which causes people to buy at the top. And the fear of loss, which causes people to sell at the bottom. Math is what wins.
meh… I’ll still take a good rabbits foot over a good formula any day of the week.
The elections taught us that the elite do not control the voters.
But we know that the elite control the markets and the economy via the Fed and other gimmick devices (high frequency trading, etc…). It would be quite easy for the elite to let some air out of the investment bubble and blame it on Trump. If you think that’s far fetched you just haven’t though it all the way through,
If I want to gamble I go to Vegas and sports bet. It’s fun. Trading stocks and trying to figure out how the investment game is rigged takes way too much time and isn’t fun.
To each his own.
At the bottom and source of all this there is FEAR.
It has led to the distortions through not wanting to face down problems for FEAR of the consequences – leading to ever increasing convoluted distortions so the grenade can be passed on to the next sucker in line.
It just happens to be Trump and the system is FEARFUL of Trump but also sees someone they would like to see go up in smoke.
Meanwhile Yellen et al are slowly pulling the pin whilst Obama sneaks out the back door.
A lot of folk are going to hurt a lot and the one holding the grenade will get the blame.
Bernanke/Yellen are the ones holding the grenade — but they are standing next to McCain, Pelosi, Reid, Ryan, Clinton, etc
I don’t dispute the powers that be still think they are running things. I prefer to leave the tin foil hat at home, and focus on the evidence.
Soros spared no expense manipulating Obozo and the EU into staging a coup in Ukraine. They were caught red handed in their coup, plus the Russians in Crimea voted to go back to being part of Russia.
How many red lines in the sand did Obozo draw in Syria? Assad had better not use chemical weapons or else Obozo will be very angry!!! Maybe he will steal Qadafi’s weapons out of Libya and give them to “moderate” terrorists to overthrow Assad and replace him with ISIS.
Libya, speaking of, was a disaster. Ambassador killed. Lame youtube excuse exploded in Washington DC’s face. Italy and France have been unable to extract Libyan oil at the rate Qadafi used to supply it, never mind at a rate that might liberate Europe from Russia.
Egypt used to be a staunch western ally. Between Mubarak being Obozo’s friend, no wait enemy, no wait friend, no wait the blind guy, no wait they are Iranian stooges, no wait… and now the Egyptian military has the support of the Egyptian public and the US is not trusted.
Soros’ massive investment in Petrobras and the Lula oil field kind of blew up in the establishment’s face. Brazil’s government is shattered, billions are “missing” (apparently spent on washing a few cars?!?!), and Petrobras still lacks the technology to extract the sub-salt oil deposits hundreds of miles offshore — so they will have to beg for outside help, after they deal with the corruption problems.
Obozo then bullied Phillipines into using the UN, world court or some other “New Soros Order” super state entity to rule against China. Ooops. Angered China, alienated Phillipines, and made everyone else in southeast asia want to hedge their US bets.
China meanwhile bought up mineral rights all over Africa, guaranteeing themselves alternate supplies and “jobs” (building access roads) for Chinese dissidents who will be worked to death to make sure there is social harmony back in China.
Japan is at the end of its 3rd lost decade. Its population is shrinking. Tokyo is “booming” because youth are abandoning small villages for lack of any opportunity. The folks near Fukashima now glow in the dark, while Japan is once again dependent on energy imports or restarting poorly thought out nuclear plants.
And last but not least, the powers that be pulled out all the stops to rig the US election to get their criminal and her philandering husband back into the White House… instead they get a twittering real estate mogul.
If any of this sounds like it went according to plan, I would hate to hear what the defeat scenario looked like.
Slightly o/t :
“At $2 trillion plus, the family’s reported wealth is closing in on five times as much as the combined wealth of the world’s top 8 individual billionaires, meaning that the Rothschild family alone controls more wealth than perhaps three-fourths or more of the world’s total population.”
http://www.wakingtimes.com/2017/01/20/rothschild-family-wealth-five-times-worlds-top-8-billionaires-combined/
Also on European surveillance
https://www.justsecurity.org/36098/era-mass-surveillance-emerging-europe/
I’ve never been one that likes to seek single explanations for market moves. but I really saw most of the move, post Hillary’s demise, as the expectation of a higher NPV as a result of knowing that corporate post tax cash flows should under Trump, be higher.
Hillary was pretty clear about her desire to attack the evil corporations.
since I wasn’t clear. Attack = Tax at a higher rate.
Layman’s Terms Translation: The secular trend of declining Treasury bond yields remains intact. We haven’t fixed a damn thing when it comes to the economy. We have, however, done a spectacular job of pulling demand forward year-after-year while covering up the fraud and looting within the financial sector.
Western societies can continue importing new hungry eaters that will happily consume when provided credit and entitlements. This can go on a long time as long as we are willing to live in delusion….The entire basis of an economy based on CONFIDENCE supported only by the notion of the man falling from a tall building, with the passing of each floor….”so far, so good!”.
Absolutely.
See everyone @ 1% on the 10yr
I AM READING BARRONS TWICE A MONTH AND I DO KNOW WHAT S GOING ON IN THE USA AND HOW TO MAKE MONEY IE BUY LEADING STXX
LET SEE KOPIN TAN STATED THE US EXPORTS MORE GOODS TO CHINA EACH MONTH 9.7 BILLION ON AVERAGE THAN IT DOES TO RUSSIA 7.1 BILLION IN A YEAR
MOREOVER MY FRIENDS LOOK AT THAT LET US NOT FORGET THAT BEIJING HOLDS 1.1 TRILLION IN US TREASURIES WELL DEBT I THINK VERSUS 75 BILLION DOLLARS FOR RUSSIA
AS A RESULT PRESIDENT TRUMP WILL HAVE IN MY HUMBLE BUT REALISTIC OPINION TO CALM DOWN ON CHINA OTHERWISE CHINESE WILL TRADE MORE WITH EUROPE AND RUSSIA OR INDIA AND THE USA WILL DECLINE TRADE AND GROWTH
THE RUST FACTORIES IN US CENTER WON T MAKE FOR COMPENSATE SLOWDOWN OF TRADE AND BUSINESS ESPECIALYY HIGH TECH INDUSTRIES IN CALIFORNIA SILICON VALLEY WEST COAST AND EAST COAST OF USA
IFTHE US ECONOMY IS SO LINKED WITH THE CHINESE IT IS SIMPLY NOT POSSIBLE IN 4 YEARS TO BREAK EVERYTHING DOWN AND HE WILL HAVE TO MOVE QUIETLY NOT LIKE AN ELEPHANT IN A CHINA STORE I WOULSD SAY SO GOOD LUCK TO HIS ADMINISTRATION HOPEFULLY TRUMP WILL SUCCEED AS THE INTEREST OF THE WORLD IS TO HAVE A STRONG AND UNITED USA BEING A MODEL FOR OTHERS
WITH THE INTERNET AND GLOBALISATION ISOLATIONALISM IS OUTDATED
I don’t think anyone, even the most optimistic, thinks that we can completely reverse our trade deficit, but if we are not to start now, then WHEN?
After ALL our factories are shuttered?
After we are COMPLETELY dependent upon foreign manufacturers who then can name their price AND terms?
After the US has surrender ALL superiority accept consumption and debt?
There IS a trend and it is NOT our friend.
President trump makes people nervous because his changes will be open transparent and swift. He also will openly fight politicians. They hate that. Obama on the other hand made changes quietly, secretly an slowly. Change is always unsettling.
Well, there should be some good theatre dead ahead.
DJT can certainly achieve some stuff on his own … but much will require working with Congress. I, for one, don’t expect Congress to be rolled easily.
HUGE difference between tweeting about doing something and actually getting that legislation on his desk to sign.
Hopefully, DJT will prioritize his goals … he risks getting NOTHING accomplished if he tries to ram too much down Congress’s throat.
100% agree. The president’s only real power is the bully pulpit. Trump is a master at that, but many of his campaign promises are diametrically opposed to the Republican Party’s traditional stances. Trump says he will fix SS and Medicare without reducing benefits. And that he is going to have better insurance for the poor than Obamacare’s meager offerings. This stuff costs real money and I think it will be tough to get Congress to pass any of it.
Most of those poor who were helped by Obamacare were simply added on to medicaid. WE could have simply funded those poor from general revenue and been cheaper than the billions pissed away trying to impose government control of health care. SS will be solved by medicaid when all us old farts can’t afford decent healthcare and simply die off earlier than late. It already happens.
When My father was diagnosed with bladder cancer at the age of 82, his medicare doctor told him the best plan was to go home and wait to die….which he did…at home. Doctors aren’t paid well enough by medicare or medicaid to give a damn, and they won’t….any more than those at the license department give a damn if you get a license.
Whatever one’s opinion of Trump, he is not a quiet man. He has many decades of practice dealing with corrupt and/or incompetent bureaucrats in NYC, and several decades of dealing with the same in other cities / states, not to mention that golf course fiasco in Scotland.
I assume the media talking heads are too stupid to connect the dots, but a big real estate developer has to deal with massive red tape, bureaucrats and politics every day.
Congress on the other hand, has never encountered a loud mouth with no hesitation to expose the entire corrupt system. Roaches scattering in the sunlight when someone rips open the shades.
Mish u have been critical of Trumps plans to punish China and others as currency manipulaters and I understand the huge risk of a trade war. But I think I remember that our trade deficit with China alone is about a billion dollars a day. So you r the president. What do u do to address this problem? If this keeps up at some point they will b able to buy and control all kinds of American assets, or am I missing something here?
Mish, like most economists today, I think, believe that we should simply glory in the access to cheap goods. But I think they ignore the single basic premise of economics…supply and demand. How is it possible to sustain a market place where all means of production are lost to low cost competition to the point that our SUPPLY is dominated by ONE source…a source that historically has accepted our printed (over printed) currency backed by nothing but the “good will” of our profligate government? At what point, after we have surrendered (or sold) all of our means of production, will the Chinese simply say “enough” and begin charging whatever they please? Without competition, what will regulate price? If the assumption is that The Chinese will have other competition, who will that be and how will we prevent them from allying to “corner the market” much as we see OPEC behaving? This is NOT simple trade, it is PREDATORY trade. Listen to the Chinese speak as they did today;
http://www.zerohedge.com/news/2017-01-23/china-says-its-ready-assume-world-leadership
“Western style democracy used to be a recognized power in history to drive social development. But now it has reached its limits,” said another article on the same page. “Democracy is already kidnapped by the capitals and has become the weapon for capitalists to chase profits.”
They are not and do not want to be a free market capitalist partner… they still believe in communism and communists still believes their only true path is world domination….just like liberals believe the only way to “fix” healthcare is by forcing EVERYONE to participate and GOVERNMENT to control it.
Like it or not, we ARE in a trade war…have been for a long time if not forever. This is about world domination and the Chinese are not particularly bashful about it. They will be more than pleased to sell us the rope for our own hanging. They are constructing their economy and are slowly creating customers in their own nation to consume their own production…like we used to do, and once they approach that goal, and our production capacity (physical and mental) is gone, we will revert back to our third world beginnings.
As as inverse to, for instance, what Reagan (an overrated Prez with conservatives who don’t know his actual record) started out with, Trump is starting out with:
1. Debt nationally and worldwide at all-time record highs
2. A stock market at an all-time record high (but not in constant dollars)
3. Interest rates at all-time record lows
So what’s the best lever to pull, the only one left besides increasing #1 above, to stimulate the economy? HUGE reductions in regulations; an end to anti-competitive behavior exemptions for and no-bid buys from the medical care sector; large reductions in business taxes.
I hope that’s the path he takes and that he can succeed, but color me skeptical. He has HUGE headwinds on that path.
When absolutely all asset markets have been pumped up artificially, an across the board asset price collapse is what is best for America.
Fat chance Trump, nor the vast majority of the dittoheads surrounding and supporting him, nor, heck, even those who claim to be nominally opposed to him, are logically astute enough to get to the point of even considering that truism. Such is the power of pervasive indoctrination of a captive populace.
“So what’s the best lever to pull, the only one left besides increasing #1 above, to stimulate the economy? HUGE reductions in regulations; an end to anti-competitive behavior exemptions for and no-bid buys from the medical care sector; large reductions in business taxes.”
We’ll see
Re: reductions in regulations
IMO, much of regulations put in place by big corps as way to preserve cronyism. A reduction in regs lowers barriers for new players. Certainly something the varied cartels don’t want.
Re: reduction in business tax rate
Big corps only in favor of if they can keep their current loopholes (see IBM just reported earnings with effective tax rate < 10%). High tax rates (but with loopholes for the insiders) keeps the riff raff (see startups) out … and cartels/cronyism intact.
When it pertains to the stock market, I will never understand the gamblers mind. It seems everyone is betting for failure or in the case of said blog title, everything is awesome. The whole financial world seems more and more like a crazy and surreal alternative universe to the one I live in. And, no matter how I try to understand, I just find it weird that this paradigm rules our lives so strongly.
Curiosity getting the better of me here, but what would it take to change this and what would take the place?
It will not change. It is as it has been and will always be. And the majority will never understand it. It is just now, as you correctly point out, a bigger part of peoples lives than ever before.
There isn’t much to understand. Many people have more money than they desire to spend on actual goods. So they use the money to hopefully make money by investing in various financial markets. It is fun and risky. The secret is that over the long term, the financial markets will make money. Why? For the annoyingly simple reason that people want it to. Yes, it will crash every decade or so. But it will always go up higher than before.
The key is to have a political system that insulates real working people from the vicissitudes of the financial markets. But that is hard to do because the people who are deeply tied into the financial markets are also deeply tied into politics. And I’m not sure that separating the 2 is possible.
“The whole financial world seems more and more like a crazy and surreal ALTERNATIVE universe…”
Fear not, the Trump team thrives in such fantasy a world…
and acceptance of their “alternative facts”…
will miraculously make sense, out of the senseless.
Oh, bugger off. For something of this nature, I’m uninterested in sarcasm and really am looking for a real explanation or a way to ground this concept so it makes sense to me.
Thanks to the other two posters who offered realistic reasoning.
I’ve been hearing the whole “sky is falling” mantra for the last 8 years. I’ve seen so many articles, posts, charts about the impending financial doom we’ve set ourselves up for because of ZIRP, QE, buybacks, derivatives, etc.. Watch out – the bubble is gonna pop, and you’ll be sorry! But nobody, and I mean nobody, knows when. It is not hard to make a call that the market will crash or the market will boom. Wait long enough and both will happen. It is not a “prediction” to say the market will crash, and then like 12 years later it crashes. So tired of having missed out on the market gains since the financial crisis of ’08 because I listened to all the stuff about how we’re in sooo much trouble and the bottom is about to fall out any time now. There are no reliable indicators, no “evidence’, no nothing. The economy is sometimes rational, sometimes irrational, but NEVER predictable. Get out your Magic Eight Ball (for you folks old enough to know what that is;), shake it up, and see what it says – it is as good a guess as anything I’ve seen, and I’ve seen alot.
Can’t wait for February to buy a new used car and spend lots of hoarded money in Trump’s first full month of economic activity.
Going to pounce on one of those tens of thousands of lease returns about to hit the market.
In regard to Shiller’s Cape ratio, when you adjust for dividend payout, inflation and interest rates it tends to show a different picture. The Cape ratio inexcusably showed the March 2009 market as barely below fair value. If this simplistic ratio misses that wonderful opportunity, why should we expect it to call the next market top correctly?
It’s useful, but needs some additional filters put in place.
My 2 cents about trading: The market moves back and forth based on the where the previous highest trading volumes were. This is where you will find highest amount of buyers and sellers when placing a trade.