Musings Report 2019-48 11-30-19 Am I Crazy or Just Plain Wrong?
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Am I Crazy or Just Plain Wrong?
Many of us who are skeptical of the narrative that the U.S. has decoupled from the global economy and is now growing smartly again gaze in stunned wonder at the relentless rise in U.S. stocks over the past month.
Is this the result of renewed enthusiasm for the "growth is resuming" story or is it simply a function of the Federal Reserve restarting QE ("not QE") by injecting $60 billion a month into the financial system?
Given that stocks have been tracking the Fed's expansion step for step, it's tempting to dismiss the "growth is resuming" story as nothing but a convenient cover for the same old driver of momentum, "don't fight the Fed."
While evidence of renewed growth gets the headlines, how sustainable and broad-based is the growth? How much of the surge is related to the sudden collapse of interest rates? Even with the decline in rates, how much demand is left after 10 years of bringing demand forward with low rates?
Given that the global slowdown is real, and that almost half of Corporate America's profits are earned overseas, how can U.S. stocks rise as corporate profits stagnate or decline?
How much demand can there be in the bottom 90% of households as the buying power of wages has stagnated, despite headlines about "renewed wage growth"? Is a 1.5% or 2% wage increase really going to make households whole after a decade of rising debts and declining purchasing power?
Can the top 10% of households reaping the capital gains continue to prop up the whole U.S. economy and indeed the global economy? If the wealthy households trim their spending even modestly, the answer will be "no."
The relentless rally in U.S. stocks looks crazy to me, completely decoupled from economic reality, but maybe I'm just plain wrong.
For some guidance, let's consider a few charts. For those with little patience for wiggly lines, here's the summary:
1. Volatility (VIX) is at lows that in the recent past signaled stock market highs.
2. The Semiconductor Index (SOX) and Utilities Index (UTIL) have been leading stocks higher all year. But now they've stopped leading and are actually sagging.
3. The hottest housing markets are tracing out tops that looks very similar to the peaks in the 2007-08 housing bubble.
4. Vehicle sales have been slowly declining for a few years.
The SPX (S&P 500) is also looking tired and amenable to rolling over.
Am I crazy for doubting the sustainability of the stock market rally's trajectory, or am I just plain wrong because "the Fed has our back?"
Put another way: will there ever be diminishing returns on Fed intervention?
Will the 11-year Bull market / expansion ever die of old age?
The charts are setting up to let us know either way in the next few months.
Highlights of the Blog
A China Trade Deal Just Finalizes the Divorce 11/29/19
Thanksgiving 2019: A Few Things I'm Grateful For 11/28/19
We Can Only Choose One: Our National Economy or Globalization 11/26/19
Darn, This Is Inconvenient: Apple Is Destroying the Planet to Maximize Profits 11/25/19
Best Thing That Happened To Me This Week
Three-pack: saw "Ford vs Ferrari" with longtime friend S.T., a warm confirmation of friendship from a younger friend and a note from my brother and sister-in-law that the highlight of their recent visit was the week hanging out at our house. I'm grateful for the positive comments and the experiences!
From Left Field
If Corporations are People, they are Sociopaths (via Dave P.)
Political Ponerology (A Science on the Nature of Evil Adjusted for Political Purposes) (via Colin D.)
There Is No Such Thing as a Free Press
Is Peer Review Forcing Academics To Become Prostitutes?
Climate Change Fueled The Rise And Demise Of The Neo-Assyrian Empire, Superpower Of The Ancient World -- and the Western Roman Empire and the Mayan Empire....
Why the working class is deserting Labour: John Gray says sneering Leftists see working people as fit only for Soviet-style re-education - but Boris Johnson lets them be patriotic and feel good about life
The Inflation Gap: A new analysis indicates that rising prices have been quietly taxing low-income families more heavily than rich ones. -- nice to see the MSM wake up to inflation after only a decade of denial....
Climate Change’s Great Lithium Problem: The future of technology metal mining in South America and elsewhere could look eerily similar to centuries of colonial exploitation, dressed up as environmentalism: American highways could buzz with Teslas traveling between sprawling suburban rooftops and office parks decked out in solar panels, all premised on capitalist profiteering and disregard for indigenous rights/
Schumer’s proposal, which is supported from labor and environmental groups, embodies the kind of cheery techno-optimism that has dominated climate policymaking in wealthy countries like the U.S. for decades: We have the money and technology to mostly maintain business as usual by simply replacing the energy source that powers it, with a few complementary tweaks along the way.
how many energy slaves do you have? (page 8)
Forced to Love the Grind: Passion is the new workplace requirement — and one that should be resisted.
Top 3 films of each year, 1924-2018 (via Maoxian)
Hokusai: old man, crazy to paint: Japan’s most famous artist believed that the longer he lived, the better he’d get. A new exhibition in London proves him right. (via Cheryl A.)
Bivona, Sicily, is the latest Italian town selling homes for $1 -- how much money will the renovation cost, and maybe even more importantly, who will do the work on budget and on time when most of the ambitious young people have left?
"The invention of money opened a new field to human avarice by giving rise to usury and the practice of lending money at interest while the owner passes a life of idleness." Pliny the Elder
Thanks for reading--
charles |
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