Investors glance at the markets...
INVESTORS continue to look at the half-full part of the glass, writes Bill Bonner in his Diary of a Rogue Economist.
Our suggestion: They should look more closely.
In the empty part of the glass are the trade war...the deficit...the Fed's QT (quantitative tightening)...rising interest rates...bubbles everywhere...the growing dark power of the Deep State...the approaching stock market crash...the coming recession...the Kardashians...the inevitable bankruptcy of the US government...Mike Pence...
...the increasing number of people driven to madness by the headlines and turned into mass murderers, and even more who are so depressed by the claptrap that they can think of no better remedy than to slit their own wrists...
...the passing of the summer solstice (with shorter and shorter days from here until the 21st of December)...and the fact that they are getting older and fatter...and will all die in a few years.
In the full part, on the other hand, investors find what they were looking for: GDP is supposed to be growing at almost 4% per year...unemployment is just above a 50-year low...Brexit will be "soft"...the trade war will be polite...the Canadians are on the run...the Chinese are backing down...
...the new Supreme Court justice will be a won't-rock-the-boat insider...homeowners have a record amount of untapped equity...their summer vacations were coming soon...and they were getting better looking every day.
The half-full part of the glass seems to justify higher stock prices. Dutifully, investors have been buying.
Markets are always looking at the glass, measuring one half against the other. Investors are always trying to guess whether the glass is filling up or emptying out.
But here at the Diary, we're suspicious. "What's in the damned glass?" we wonder.
So let's empty it out on the table and have a look.
Is unemployment really just shy of a 50-year low? Not really.
The glob of jobs numbers is messy and disgusting. More people are supposedly working. But more people are not working, too.
The labor force participation rate – the%age of the working-age population employed or looking for a job – has been trending downward since 2001. From a peak of 67% at the dawn of the new millennium, the participation rate has dropped to about 63% today.
And real, full-time, family-supporting jobs – such as desk jobs and those in manufacturing or mining – have increased during the 21st century, but only at about a quarter the rate of growth in the workforce.
The slack was taken up with part-time gigs, or jobs in "soft" service industries – such as taking care of old people, parking cars, or flipping burgers.
Nor has there been any significant change in the unemployment picture since Donald Trump was elected. The trends remain the same: more low-paying jobs, fewer good ones.
The result? The typical man has less real spending power than he had at the beginning of the century. He has to borrow more and save less just to stay in the same place.
That's why today's savings rate is around 3% – near a record low. And household debt is at an all-time high, even higher than it was in '07.
And what about GDP growth? Is the economy really booming? Nope.
Economists are betting that the second quarter will be good – with growth maybe even over 4%.
But single-quarter readings are useless. One quarter during the Obama years showed GDP growth at 5%. Another "printed" at over 4%. Later, both regressed to the mean.
The economy has been slowing for at least 30 years. Our hypothesis is that it is being held back by age, debt, regulation, and the Deep State's win-lose deals.
And if we look at un-fake indicators – those that can't be diddled, such as final sales, Social Security, and income tax receipts – we see that the drag continues. None of these measures show a break from the trends of the Obama years.
But what about the tax cut? Wasn't that supposed to light a fire under the economy? And what about the trade war? Wasn't that supposed to bring jobs back to the US?
Isn't there something in that half-full glass to make America great again...or at the very least, to make stocks more valuable?
Perhaps stock market investors see something we don't. But all we see are cheap tricks, scams, and black magic.
The tax cut, for example, does not seem to be stimulating the economy at all. Instead, as expected, most of the corporate tax savings is going into share buybacks, initial public offerings, and corporate mergers.
Bloomberg has the details:
"Corporate America is set to shower investors with a record surge of cash.
"Between buybacks, dividends, and merger activities, companies are poised to plow $2.5 trillion into the stock market this year, according to UBS Group AG. The buying spree is equivalent to 10% of the S&P 500's market capitalization, easily outstripping prior records."
It suggests that companies have nothing better to do with their money than give it back to investors.
They apparently see no sales growth to justify factory expansion or additional hiring. And without that capital investment, there is no reason to expect an increase in productivity or wages.
Instead, the net effect of the tax cut should be to amplify the trends of the last 30 years – increasing debt levels, shifting more resources to the wealthiest part of the population, and reducing the real growth of the Main Street economy.
As for the trade war, so far, it has had the curious effect of moving export sales forward, as buyers and sellers hastened to beat the deadline.
The US trade balance took an unexpected jump as soybeans, in particular, were rushed to China last month.
But that blip has already disappeared. And now we are faced with the reality of a trade war – with lower sales, lower profits, and an even more sluggish economy.
More broadly, almost everything in that half-full glass – except the air – is either a lame misconception or an outright fraud.