Economics

[NDBoiler]

I’m less concerned about the small swings but the the larger catastrophic ones. Seems volatility is up as well and with the real possibility our current system is smoke and mirrors It just seems dissonant with a stock market at record highs. I guess I am trying to get an understanding so I can make wise decisions.

Also I am staring to see layoffs at work, no raises, consolidation of duties and all kinds of other things indicative of employers preparing for a downturn.

It is important to know how long you are planning to invest in order to be able to make wise decisions. 5 years? 10? 20? The market has all ways had ups and downs and always will, but over the long haul you will very very likely come out ahead. Take the S&P 500. If you look at its’ 20 year rolling returns for the nearly 100 years since its inception, 100% of the periods made money, with an average of about 10-11% annual return per period post-Great Depression. The catastrophic downturns you refer to are very very few and far between IMO, and a lot of factors have to come together to cause them. Even so, the market has recovered from every one of them in relatively short periods of time.

Without knowing what industry you’re in or how your employer manages the company, it’s tough to say for sure what is going on there. Obviously anything in the service sector has been affected by the pandemic. If anything, this should serve as a good reminder of the importance of keeping an emergency fund of at least a few months of expenses should you be unlucky in employment (would be nice if more businesses maintained a decent fund of retained earnings too for the same reason!).

Best of luck to you, and try not to worry too much about it. Just put your head down and grind on as best you can.

 

[Whiskeyjack]

Also I am staring to see layoffs at work, no raises, consolidation of duties and all kinds of other things indicative of employers preparing for a downturn.

That's an easy one. Our capitalist class has been working diligently to decouple corporate profits from the health of the American labor market for decades, and they've largely succeeded. So record unemployment and increasing instability among our lower classes isn't incompatible with record highs for the S&P500. It's all by design, and will likely continue until the American empire falls.

 

[IrishLax]

Apple has a $2T market cap while small businesses are in worse shape than during the '08 crisis. The S&P goes up because the game is rigged for the multinational mega-corporations... they love this shit. They have the financing to weather any storm, whereas the prolonged COVID crisis in the US is cleaning out small business owners.

Short of massive pro-small business policy changes, anti-large business policy changes, and things like UBI to keep the consumers consuming... we are headed for disaster. Would be a completely different story if we were on the recovery track of Europe, but we aren't.

 

[zelezo vlk]

Isn't there a potential anti-trust case coming through against the Big Tech companies? Thought I read that there was even bipartisan support for it.

 

[tussin]

That's an easy one. Our capitalist class has been working diligently to decouple corporate profits from the health of the American labor market for decades, and they've largely succeeded. So record unemployment and increasing instability among our lower classes isn't incompatible with record highs for the S&P500. It's all by design, and will likely continue until the American empire falls.

Yes and no. The layoffs in most end markets largely correlate to significant decline in corporate profits (my company is down 30+%). That said, agree that stock prices are largely uncorrelated... but that is likely due to market expectation of a significant recovery in corporate profits in the coming quarters.

 

[tussin]

Apple has a $2T market cap while small businesses are in worse shape than during the '08 crisis. The S&P goes up because the game is rigged for the multinational mega-corporations... they love this shit. They have the financing to weather any storm, whereas the prolonged COVID crisis in the US is cleaning out small business owners.

Short of massive pro-small business policy changes, anti-large business policy changes, and things like UBI to keep the consumers consuming... we are headed for disaster. Would be a completely different story if we were on the recovery track of Europe, but we aren't.

I'm not sure how you can say the "game is rigged." AAPL's recent success has little to do with financing capabilities to weather a COVID recession. People are buying tons of Apple products. They just posted record earnings and the market cap has responded accordingly.

 

[Cackalacky2.0]

That's an easy one. Our capitalist class has been working diligently to decouple corporate profits from the health of the American labor market for decades, and they've largely succeeded. So record unemployment and increasing instability among our lower classes isn't incompatible with record highs for the S&P500. It's all by design, and will likely continue until the American empire falls.

Apple has a $2T market cap while small businesses are in worse shape than during the '08 crisis. The S&P goes up because the game is rigged for the multinational mega-corporations... they love this shit. They have the financing to weather any storm, whereas the prolonged COVID crisis in the US is cleaning out small business owners.

Short of massive pro-small business policy changes, anti-large business policy changes, and things like UBI to keep the consumers consuming... we are headed for disaster. Would be a completely different story if we were on the recovery track of Europe, but we aren't.

I think this is where I am at to. I don’t have a warm and fuzzy about the overall state of nation’s economy.

I read today that 92% of stock market is controlled by the top 10% of wealthiest Americans. My measly portion of that remaining 8% could be wiped out in a matter of minutes as well

 

[IrishLax]

I'm not sure how you can say the "game is rigged." AAPL's recent success has little to do with financing capabilities to weather a COVID recession. People are buying tons of Apple products. They just posted record earnings and the market cap has responded accordingly.

Just citing Apple as an anecdote to contrast to the damning reports on the general health of small businesses. My larger point about the S&P and financing was supposed to be about lots of different companies not just Apple.

What I was trying to say is this: the S&P 500 is going gangbusters because, with the exception of a handful of companies whose profit centers are directly impacted by something like COVID, they benefit from this kind of economic catastrophe. Even those are that impacted -- like a Hilton or United Airlines -- are positioned to come out of it way stronger than someone who was running a singular bed & breakfast because of their capital on hand, financing, etc.

Small businesses employ 50% of people in the United States, the big boys in the S&P employ 20%. These large businesses are also progressively automating and consolidating to reduce jobs in ways that small businesses can't. And when small businesses fail, the large businesses capture their market share for pennies on the dollar. It's the Walmart model but writ large in every industry and exacerbated by a pandemic. That's how the game is rigged. Bigger and bigger profits, fewer and fewer jobs... and the jobs pay less. And small businesses become harder and harder to run at a profit. Every single day the scale tips a little more.

 

[Wild Bill]

Just citing Apple as an anecdote to contrast to the damning reports on the general health of small businesses. My larger point about the S&P and financing was supposed to be about lots of different companies not just Apple.

What I was trying to say is this: the S&P 500 is going gangbusters because, with the exception of a handful of companies whose profit centers are directly impacted by something like COVID, they benefit from this kind of economic catastrophe. Even those are that impacted -- like a Hilton or United Airlines -- are positioned to come out of it way stronger than someone who was running a singular bed & breakfast because of their capital on hand, financing, etc.

Small businesses employ 50% of people in the United States, the big boys in the S&P employ 20%. These large businesses are also progressively automating and consolidating to reduce jobs in ways that small businesses can't. And when small businesses fail, the large businesses capture their market share for pennies on the dollar. It's the Walmart model but writ large in every industry and exacerbated by a pandemic. That's how the game is rigged. Bigger and bigger profits, fewer and fewer jobs... and the jobs pay less. And small businesses become harder and harder to run at a profit. Every single day the scale tips a little more.

I'll add control over our government as well. United isn't going to escape catastrophe b/c they're a well run business with smart people and great ideas. They took billions from the feds and then fired people when they were allowed to fire people. Meanwhile, like Lax said, small businesses are just left to die.

They control the media too so that helps paint a pretty picture.

 

[Luckylucci]

I don't know, I always come out somewhere in the middle on these issues. Equities are an asset class just like others. My opinion is always you trade the market you have not the one you want.

So, I usually tend to look at equity prices as being a good value versus other assets classes, or not. Not whether it's being 'rigged' or not, as that tends to sound like an all or nothing proposition. Which usually keeps people completely out.

Most recently, I look at it as being a massive liquidity event. We flooded the market with liquidity and that liquidity found its ways into the business and companies that were doing the best during this 'new normal'. Is the market overvalued? Yes. At just under $130/share in S&P 500 earnings and the S&P at 3,377 it trades at a current PE of roughly 26. That's pretty damn expensive. 2021 estimates are for roughly 170/share in earnings which puts it at roughly 20x. Not exactly cheap. When you consider S&P earnings for 2019 were approx. 170/share so no growth over 3 years and a PE of 20, it doesn't seem like a good deal. Is it because we pulled forward multiple years of earnings in some sectors? Probably.

However, not all sectors/stocks/etc. are expensive. There are plenty of blue chips that have reasonable valuations. And Value, as a sector, seems very reasonable right now. It seems the short term spike in liquidity just separated the haves from the have nots, very quickly.

Will these valuations hold forever and we'll just grow into them? No, probably not. Is the next pullback the pullback that ends it all. Probably not. I always stick to, what is my comfort level is with equities (conservative, moderate, moderate/aggressive, etc)?. Then stick with that and use a + or - 10-15% swing allocation to convey my fear or excitement of equity valuations. This way if equities continue to stay expensive, I take part in that. If they do get cheap, I have the opportunity to do some buying.

On the liquidity front, the Fed has found that reducing interest rates while supporting balance sheets through eliminating the risk of mass defaults is what would work. You can argue whether it's right or not and I completely understand those that say it isn't. My personal opinion is I'd like to see more free market capitalism in these situations and have a healthy reset. But, that's not the market we have. And, it's not exclusive to the US. Europe has been doing versions of QE for a sustained period of time. Important to remember that the US was, somewhat recently, in a tightening period for what, 3.5 years?

But, to the point of central bank intervention, there is concerted effort, worldwide, by central backs and there has been for awhile. Again, you can argue whether it's right or not but you can't really argue it's exclusive to the US.

This is by no means a recommendation JMO on the matter.

 

[Legacy]

The Fed slowing on buying up debt?

 

[Wild Bill]

I don't know, I always come out somewhere in the middle on these issues. Equities are an asset class just like others. My opinion is always you trade the market you have not the one you want.

^^^

 

[Cackalacky2.0]

https://www.newscientist.com/article/2242937-universal-basic-income-seems-to-improve-employment-and-well-being/#Echobox=1598028651

I dont recall how long a go it as but I know we discussed Universal Basic Income. The link above is an analysis of a two year experiment in Finland. Mixed results but it seems to indicate less financial uncertainty in uncertain times for families.

Another report on an Alaskan program:
https://www.salon.com/2020/08/23/could-universal-basic-income-work-in-the-us-economists-look-to-a-test-case--in-alaska/

 

[GowerND11]

https://www.newscientist.com/article/2242937-universal-basic-income-seems-to-improve-employment-and-well-being/#Echobox=1598028651

I dont recall how long a go it as but I know we discussed Universal Basic Income. The link above is an analysis of a two year experiment in Finland. Mixed results but it seems to indicate less financial uncertainty in uncertain times for families.

Another report on an Alaskan program:
https://www.salon.com/2020/08/23/could-universal-basic-income-work-in-the-us-economists-look-to-a-test-case--in-alaska/

I like the idea of UBI, but will never get my hopes up here in the USA. Too many politicians hedge their bets and only half ass reforms so they can make easy spins that, "The other side wouldn't work with us, that's why it failed" and other BS.

Can you imagine being the party that says, "OK we are going to eliminate welfare, food stamps, Social Security, heating vouchers, etc. etc." It's political suicide, even if you are replacing them with a more efficient and less bloated UBI system.

 

[Cackalacky2.0]

I like the idea of UBI, but will never get my hopes up here in the USA. Too many politicians hedge their bets and only half ass reforms so they can make easy spins that, "The other side wouldn't work with us, that's why it failed" and other BS.

Can you imagine being the party that says, "OK we are going to eliminate welfare, food stamps, Social Security, heating vouchers, etc. etc." It's political suicide, even if you are replacing them with a more efficient and less bloated UBI system.

I too think the parties would not want them to go away for their own selfish and political reasons. I wonder if the monetary value of all those benefits could be assessed and slowly shifted into a UBI. Maybe the UBI would be inclusive of certain things and a bit more regional on others.

If the GOP didn’t have their favorite dead horse to kick and the Dems didn’t have their greatest achievement to hold up, SS and welfare contributions could be consolidated at a minimum.

 

[Luckylucci]

I too think the parties would not want them to go away for their own selfish and political reasons. I wonder if the monetary value of all those benefits could be assessed and slowly shifted into a UBI. Maybe the UBI would be inclusive of certain things and a bit more regional on others.

If the GOP didn’t have their favorite dead horse to kick and the Dems didn’t have their greatest achievement to hold up, SS and welfare contributions could be consolidated at a minimum.

In Andrew Yang's proposal he explains that Welfare and some other social programs would be consolidated under it as a whichever is larger you keep program.

 

[Irish YJ]

.

 

[Ndaccountant]

https://www.newscientist.com/article/2242937-universal-basic-income-seems-to-improve-employment-and-well-being/#Echobox=1598028651

I dont recall how long a go it as but I know we discussed Universal Basic Income. The link above is an analysis of a two year experiment in Finland. Mixed results but it seems to indicate less financial uncertainty in uncertain times for families.

Another report on an Alaskan program:
https://www.salon.com/2020/08/23/could-universal-basic-income-work-in-the-us-economists-look-to-a-test-case--in-alaska/

As the saying goes.....An affordable UBI is not substantial enough and a substantial UBI is unaffordable.

The thing about that Finish study is that is for only people on unemployment benefits. The group really should have looked at those both employed and unemployed. It was actually designed to do so, but the government came in and tweaked the study. Ruining it if you ask me.

I think the conversation here nails it though. The Left would want this, in addition to, the existing social safety nets. The Right would love to pool all the money spent on the safety nets, eliminate them, and give power to the people to decide through UBI. The problem is that neither side trusts each other. So, nothing will really get done.

 

[Legacy]

Two developments:

Worries grow over a K-shaped economic recovery that favors the wealthy (cnbc)

KEY POINTS
- As the economy struggles to shake off the pandemic effects, worries are growing that the recovery could look like a K.
- That would be one where growth continues but is uneven, split between sectors and income groups.
- One obvious area of concern is the dichotomy of the stock market vs the real economy, especially considering that 52% of the market is owned by the top 1% of earners.
- “Let’s not get lost on different letters of the alphabet,” Treasury Secretary Steven Mnuchin said. “There are certainly parts of the economy that need more work.”

Additonally, the CARES Act temporarily increases how much someone can borrow from a retirement account, often in the stock market, and waives the penalty for an early withdrawal.

The second one is that MNCs are increasing the amounts repatriated which they have been plowing into dividends for shareholders, helping to fuel stock market growth for those invested in stocks.

About half of Americans have an investment in the stock market, including retirement plans,

 

[Whiskeyjack]

<blockquote class="twitter-tweet"><p lang="en" dir="ltr">If economic gains since the 1970s had been shared with workers like they were after WWII, the median worker would make $102k. Instead they make $50k.<br><br>Low-income workers would make $61k instead of $31k.<br><br>The extra money instead went entirely to the top 1%<a href="https://t.co/iK16N6DsT3">https://t.co/iK16N6DsT3</a></p>— Dan Price (@DanPriceSeattle) <a href="https://twitter.com/DanPriceSeattle/status/1305544058799091713?ref_src=twsrc%5Etfw">September 14, 2020</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>

 

[Cackalacky2.0]

<blockquote class="twitter-tweet"><p lang="en" dir="ltr">If economic gains since the 1970s had been shared with workers like they were after WWII, the median worker would make $102k. Instead they make $50k.<br><br>Low-income workers would make $61k instead of $31k.<br><br>The extra money instead went entirely to the top 1%<a href="https://t.co/iK16N6DsT3">https://t.co/iK16N6DsT3</a></p>— Dan Price (@DanPriceSeattle) <a href="https://twitter.com/DanPriceSeattle/status/1305544058799091713?ref_src=twsrc%5Etfw">September 14, 2020</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>

IMO that was the whole point of American capitalism since Reagan. There has been a re-distribution of wealth. The redistribution has been a consolidation of real capital wealth by the elites. While we commoners deal with debt and a unstable 401k market for future security, the elites take that fiat money and make it real with purchases and real accumulation of wealth.

 

[Whiskeyjack]

IMO that was the whole point of American capitalism since Reagan. There has been a re-distribution of wealth. The redistribution has been a consolidation of real capital wealth by the elites. While we commoners deal with debt and a unstable 401k market for future security, the elites take that fiat money and make it real with purchases and real accumulation of wealth.

And neither mainstream party has any intention of changing this.

 

[Cackalacky2.0]

And neither mainstream party has any intention of changing this.

Exactly right.

 

[Cackalacky2.0]

 

[tussin]

The line graphs in the first chart are misleading...I think? Based on the second graph, I would expect the curves to be flattening. They definitely shouldn’t be straight lines at the very least. The second chart seems to suggest that most damage was done in the 80s/90s?

Wage growth has been impressive for lower class in the 2010s. Seems like this is a cost issue and not a revenue one - with cost of healthcare and education as the likely culprits.

 

[Cackalacky2.0]

The line graphs in the first chart are misleading...I think? Based on the second graph, I would expect the curves to be flattening. They definitely shouldn’t be straight lines at the very least. The second chart seems to suggest that most damage was done in the 80s/90s?

Wage growth has been impressive for lower class in the 2010s. Seems like this is a cost issue and not a revenue one - with cost of healthcare and education as the likely culprits.

I believe the straight lines are just best fit lines. I need to check that in the paper I pulled these from. It may actually be a linear fit to the data or just simplified to show the drop. IDK. The two data points are what’s relevant. I doubt it went up between the two points regardless.

Wage growth after 2010 is <2 percent for low income. Considering they were negative 2 percent over 2000-2010 they back at net zero change essentially in 20 years. Impressive? Meh. I’d call that in line with what the other charts show. Flat growth in the lower incomes and greater disparity bye upper ones.

The last two also show this. I believe it was by design. Economic policy changed in the late 1970s and was selling a bill of goods in one hand and facilitating change in the other. Both parties have gone along with it as well as other western capitalist countries.

 

[tussin]

Wage growth after 2010 is <2 percent for low income. Considering they were negative 2 percent over 2000-2010 they back at net zero change essentially in 20 years. Impressive? Meh. I’d call that in line with what the other charts show. Flat growth in the lower incomes and greater disparity bye upper ones.

I think the point is that the wage growth for lower- and middle-class (and the delta between top quintile and lower quintiles) has been better in the 2010s than at any point in the past 40 years. I don't think it's reasonable for us to expect wage growth to outpace GDP in lower and middle classes. Perfect? No, but that's the reality and certainly not the primary problem facing families.

The real issue is that costs have run rampant over the same period. These hikes are felt most by lower and middle class and are preventing them from building wealth. Education costs are a huge issue and are holding back the entire Millennial generation from effectively starting their lives. An easy win here for future generations would be to completely privatize student loans IMO. Health care... who knows? What a disaster.

By the way, I'm not really sure I understand your earlier point on 401Ks. Assuming you aren't referring to insolvent pension funds or something, 401Ks across the board have shown fantastic growth in the past ten years? If you have been meeting a company match and have your money in a standard retirement-date fund, you likely have a nice little nest egg saved up already for retirement.

 

[Legacy]

We're half a year into the pandemic with its economic consequences. Forecasting the increasing rates of Covid does not provide a lot of reassurance. Overall,another 1.5 million people applied for unemployment insurance (UI) benefits last week (Sept 17). That includes 860,000 people who applied for regular state UI and 659,000 who applied for Pandemic Unemployment Assistance (PUA).

Oklahoma's unemployment rate has dropped to 7.1% though that is not the "real unemployment" numbers, which include those who are no longer looking for employment and haved dropped off the unemployment numbers. Nationally, unemployment in August was 8.1% with estimates that real unemployment was around 11%. (St Louis Fed and CNBC)

Of concern would be the uninsured rate and its job losses. Oklahoma have the second highest rate of uninsured at 14% - one out of seven This would impact the uncompensated care that hospitals will face, especially if Covid cases increase in that environment.
https://www.okoha.com/OHA/Health_Ca...spx?hkey=a1684a2f-a786-4e27-bdcf-12fc4b0549e9

It doesn't look like for now that there will be further federal funding for relief. The "good jobs" in Oklahoma are in oil and gas, which has laid a lot of workers off. Those losses will affect state revenue.

For 2nd Straight Year, Oklahoma Sees Increase in Number of Uninsured
(Sept 10)

Oklahoma has been a party to lawsuits to end Obamacare. Voters recently passed a referendum to join other states in the ACA.

 

[Cackalacky2.0]

<blockquote class="twitter-tweet"><p lang="en" dir="ltr">GOLDMAN SACHS: A Democratic "blue wave" would "likely result in substantially easier US fiscal policy, a reduced risk of renewed trade escalation, and a firmer global growth outlook." <a href="https://t.co/AzuGlhj6gR">pic.twitter.com/AzuGlhj6gR</a></p>— James Pethokoukis (@JimPethokoukis) <a href="https://twitter.com/JimPethokoukis/status/1313162920981913600?ref_src=twsrc%5Etfw">October 5, 2020</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
I'm just a lowly country engineer but can someone translate this?

 

[Whiskeyjack]

<blockquote class="twitter-tweet"><p lang="en" dir="ltr">GOLDMAN SACHS: A Democratic "blue wave" would "likely result in substantially easier US fiscal policy, a reduced risk of renewed trade escalation, and a firmer global growth outlook." <a href="https://t.co/AzuGlhj6gR">pic.twitter.com/AzuGlhj6gR</a></p>— James Pethokoukis (@JimPethokoukis) <a href="https://twitter.com/JimPethokoukis/status/1313162920981913600?ref_src=twsrc%5Etfw">October 5, 2020</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
I'm just a lowly country engineer but can someone translate this?

GS is tired of Trump's chaos, and thinks the rich should be willing to pay slightly higher tax rates in exchange for less political volatility.