The Market Isn’t The Economy: A Snapshot From The Depression

Wednesday, October 17, 2018
By Paul Martin

by Richard Rosso via RealInvestmentAdvice.com,
ZeroHedge.com
Wed, 10/17/2018

“We gathered on porches; the moon rose; we were poor.

And time went by, drawn by slow horses.

Somewhere beyond our windows shone the world.

The Great Depression had entered our souls like fog.”

– Pantoum of the Great Depression – Donald Justice.

Wall Street insiders relish market troughs…

They bask sanguine in their confidence of history. Tenured pros are comforted in the belief that monetary and fiscal stimulus triggers are cocked and at the ready, reinforced in the knowledge that taxpayers without choice in the matter, will again, be the bail-out solution.

In a last irony to turn the blade in the back slowly, this group confidently takes credit for saving a system they helped to bust in the first place.

They are the strong hands who patiently await to scoop up shares when markets falter. As the smart money, these players unload inflated shares to the ‘dumb’ money or retail investors at “FOMO” or fear-of-missing-out emotional peaks.

The masses are advised to blind buy and hold. Retail investors are cajoled as “brave” if they “ride it out.” And whatever “it” is can be counted in years, even decades. Time is precious to us mere mortals. Our lives are finite; Wall Street lives on forever. The precious time it takes to break-even is ignored. Not relevant.

One of my favorite Nashville-based songwriters Drew Holcomb begins a song with a seminal line:

“Time steals every paradise I’ve been looking for.”

When Wall Street prospers, Main Street doesn’t necessarily follow a similar, prosperous path.

For example, Pew Research Center outlines that overall, American Household wealth has not fully recovered from the Great Recession. As early as 2016, median wealth of all U.S. households was $97,300; well below median wealth of $139,700 before the recession began in 2007.

Haven’t most Americans benefited from the triple-digit returns of the stock market since March 2009?

Not really.

According to the Federal Reserve’s Changes in U.S. Family Finances survey published in September 2017, median values of retirement accounts were little changed, remaining at about $60,000 in 2016. For the top income group, the rate of stock ownership, directly or indirectly, increased, continuing the trend from the 2010 survey. Stock ownership for this group was 93.6 percent in 2016.

Main Street or the middle-class’ primary motivation is wages and wage growth. Appreciation of primary residences is a strong second. Finally, signs of life exist with inflation-adjusted wages (red line), exceeding 1999 levels. Notice the average (blue line), skewed by higher wage earners.

The stock market is finally paying heed to the bond market; rising rates are having a material impact on housing as 30-year mortgage rates reach an eight-year high. Increased corporate leverage is threatening to put profit margins at risk.

A spike in ten-year Treasury rates from 3.05-3.25% (3.15% at the time of this writing), was enough to get the stock market’s attention especially at a time where there was dearth of earnings news to distract it.

Also, an observation – the uncustomary silence and respectively, bearish tones from a Fed Chair and the scattered Governor minions during the recent stock market routing didn’t help. We’re not used to silent treatment from the Fed when stocks pull back or volatility picks up. Investors have gotten accustomed to the Fed jawboning the markets quiet or higher.

Fed head-honcho Powell believes the economy is running hot and he’s just the fireman to tame the flames.

Believe him.

I write this because interest rates matter; accommodative monetary, and or fiscal, policies that increase liquidity can be significant stock market catalysts, even while a majority of Main Street’s populace suffers.

As a leading indicator, markets are characterized by a counterintuitive nature that leaves investors – novice or experienced along with the general population, dumbfounded.

The Rest…HERE

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