Comments

2

Sorry, not following. The stock market isn’t the economy. Other than a dip in stock values, which have always rebounded, what’s all the hand wringing about?

3

At which time Charles will have the mother of all orgasms.

5

@4, I know, it’s all cyclical. Which is why I don’t really understand the authors angst, here. Gloom and doom gets clicks, I guess?

6

The difference is that the Federal Reserve can't do shit this time. Interests rates are basically at zero. Lowering them won't cut it. They have already done the qualitative easing bit, which was unprecedented. The only way out is for the government to spend, spend, spend (the way it did in World War 2). Will America spend that much money during peace time, or will we repeat the mistakes made during the Great Depression (when New Deal spending was inadequate)? Stay tuned.

6

Angst is not a weltanschauung.

5, if Marx’s rapture doesn’t come to pass Charles won’t get in to heaven.

7

Behold: A stopped clock that's not even right twice a day!

8

This week on "What Will Crash The Stock Market (And End Capitalism, This Time I Promise)" with Charles Mudede:

Charlie faces a tough decision: Will he wear the Ron Paul mask today, or the Rand Paul mask? Find out when Charlie raises his little fist and squeals, "End the Fed!"

9

Has Charles ever made an economic prediction which later came true?

10

If you are interested, the Federal Reserve of St. Louis maintains a very large database of economic data. For example, this set (https://fred.stlouisfed.org/series/GFDEGDQ188S) shows the total public debt -- the amount of money the federal government has borrowed -- as a ratio of the gross domestic product. Notice how sharply it jumped during and after the Great Recession (the right-most gray bar,) reaching 105.26 by the time Obama left office. That means for every $100 the country makes, it owes $105.26 in debt.

Yeah, we're pretty screwed.

14

Any investor worth a dick is prepared for a recession or extended market dip every 8-10 years or so and prepares accordingly.

When you do prepare accordingly, these expected market dips become "sales," and you can make quite good on them once the market inevitably rebounds and gains.

Financially illiterate people just panic and start doomsaying/selling.

15

The premise, for those unable or unwilling to wade through Charles's hyperbolic, gratuitous prose goes like this:

Cheap debt has incentivized a lot of corporate borrowing (which is literally what cheap debt is supposed to do).
Some companies have used debt to fund share buy backs, which inflates equities demand.
When debt gets more expensive that demand will disappear and equities will come down.

That's the reasonable translation. But there's no reason to predict a larger than normal correction.

And debt is not getting more expensive as long as Trumps trade war bullshit continues. The 10 yr yield is lower than it's been for a long, long time. Boeing can get a better price for its bonds right now than it could a year ago. So they SHOULD be borrowing to fund buy backs while their stock is cheap.

All that is a fairly bearish signal, but that doesn't mean capitalism will end just yet.

18

The USA is in trouble because we giving companies a monopoly over trade in South America just like 1720? I didn't know that. I learned something today! Thanks Charles!

Everytime I read your stuff Charles, I'm convinced the booming U.S. economy will be unstoppable for the longest period of growth in world history. The technological advancement we are experiencing is unlike at any other time in human history. Did that happen in 1720 too?
It's like you want the stock market to crash, millions to lose their jobs just so you can get your Green New Deal... that will fix the economy... by forcing every American to buy electric cars what with all the jobs they've got now that the economy is gone.

19

I think the same thing as Charles on this subject, but frame it differently. Price to earnings ratios are almost historically poor. The more money incentivized into the stock market, the worse P/E ratios will get, the more the market is an overvalued bubble, the harder it will pop once institutional investors decide P/E is untenable and everyone else spooks in succession.

History says this will happen. I think though the factor that might confound history is the fact that the market has finally nearly fully replaced pensions as retirement savings. Some very significant proportion of the money that flows into the market every month now is in retirement accounts, and a hell of a lot of that is set and forgot in spiders and the like - hell or high water that money will keep coming. Much more so now than even in 2008. So a significant part of the market is essentially like an annuity, and a pretty well rated one at that. I think this relentless flow of dumb dollars is as much as anything why the current market up-cycle is historically long, and may have the effect of cushioning a correction. The market might be highly volatile within a range but have its bottom propped up by the billions in retirement money that nowadays flows in monthly rain or shine. #stockspanx!

But on the whole I think it's a comin'. Seems very likely the above bulwark is not strong enough to resist a crash in global markets, which seems likely. Maybe the big money colludes to goose the thing along until Trump gets reelected, but sooner or later companies need to make enough money to justify how much it costs to own them. Right now it's pretty fucking crazy how expensive the market is ....

20

Oh charles. The economy isn't the stock market.

However, you are right about the Fed not having enough tools in it's tool belt to battle the next recession. Usually the Fed lowers rates by 500bps. Right now the rate is ~2.5%. Negative interest rates in our future? Look how well that has worked for Germany or Japan.

45% of Corporate debt would be rated as Junk right now if the fed lowered rates.

It truly is a scary time if you've been the grasshopper and not the ant this past decade.

21

@19. History says nothing of the sort. Yes, P/Es climb in a bubble (duh), but that doesn't mean climbing P/Es indicate that there is a bubble. P/Es climbing could also just reflect that many high growth companies like Amazon and Netflix have moved into the S&P 500. They don't at all signal an impending drop (unless Amazon implodes).

Bubbles by definition involve a lot of people. Have you been buying up stock at outrageous prices lately? Has anyone you know?

In the tech bubble EVERYONE was buying tech stock. My chemistry teacher had them streaming across our classroom TV all day. During the housing bubble, EVERYONE was buying investment properties and trying to flip houses. It was WIDESPREAD. There's not a bubble right now, because there's not bubble behavior. There's no runaway buying. There's no reckless shopping.

And FYI. P/Es having coming down since October.

22

@21: I think more people are finally starting to realize that you can not predict or time the market, nor can you "beat" it.

Just buy low cost ratio index funds at a consistent pace. You won't get rich fast, but you will get rich.

24

@21 I think a lot of experts agree there is a bubble in corporate debt. When it pops will it be bad? Yes, but not 2008 bad.

25

"P/Es climbing could also just reflect that many high growth companies like Amazon and Netflix have moved into the S&P 500"

i.e. when the make up of the index changes (as it has dramatically since the .com bust) you can longer expect historical P/Es to be "normal"!

26

@21 your definition of "bubble" as some measure of broad participation has little utility. Bubble means (and should mean) prices exceed by good measure value. How you measure value is tricky (because in a sense the price is the value as people are willing to pay it), but P/E ratio is the best measure of value of stocks that exists. Every time P/E's been where it is now it's strongly corrected if not crashed. But even by your definition, retirement accounts own 37% of the market, which is money pumped in basically blindly on a monthly basis, and largely into Spider and Spider-like portfolios. Combine that with companies borrowing to prop up their own values and you have a whole lot of buying with no regard for value. Sounds like a bubble to me.

Say what you like about more growth-oriented weighting in the SP500, but the Schiller CAPE is hovering around 30. That's never been a sign of good times rolling on for many more years.

Anyway I've got most of my nickel on the sidelines right now, out at close to recent market highs. If I'm wrong and the SP500 is cracking along at 3200 in December I'll buy myself a cheaper than otherwise beer and toast your wisdom. But I really don't think so.

27

The reason the Dow hasn't already corrected down to about 19,000 is because there is nowhere else to put one's heaping piles of cash that keep accumulating relentlessly into the coffers of the planet's wealthiest people and corporations. The premise that the Fed is causing a (the) market bubble is novel, something to watch, a curiosity, but it's a drop in the bucket compared to the trillions that both individual and institutional investors worldwide are parking in the US stock market. There will be a recession (meaning a negative number in GDP, resulting in unemployment and a crash in consumer spending, not a fall in stock prices). It will tip the market and the market will tip back upright because ... heaping piles of cash. It can lose 30% of its value and be right back where it is in less than three years. Employment will take much longer. Home ownership will take longer still. And worker pay won't right itself ever. Weep not for thine billionaires, Charles, save your tears for the folks.

28

Christ, the only thing Charles does here is explain his own complete lack of understanding monetary policy. In fact, Muedede's proposal would sabotage his own stated goals of helping the poor and middle class so much that he's achieved a level of cognitive dissonance that would make him a prime candidate for Trump to nominate to the Federal Reserve.
So let's clear a few things up.
1) The Fed doesn't just "create or destroy" reserves. It has reserve requirements for banks, and while in theory they could be adjusted to impact the money supply and interest rates, buying and selling bonds is how the Fed controls the money supply which in turn raises or lowers the interest rate
2) Yes, he's correct that the Fed doesn't have much room to maneuver if another downturn comes because interest rates are low despite low unemployment. But that is the result of INFLATION BEING INCREDIBLY LOW. The whole point of raising interest rates is to keep inflation in check and if inflation is below target you'd actually run the risk of deflation, which would devastate the middle and working class family in ways Charles can't imagine.
3) But let's say Charles fears are justified and that the Fed should undertake action to give itself more wiggle room for the next recession. That would mean raising interest rates which, absent inflation, would have the effect of cooling the economy and raising the unemployment rate. In other words, he's saying "let's keep unemployment artificially high as a safety measure."
So forgive me Charles, but your suddenly finding common cause with right wing monetary hawks isn't a sign that you're all recognizing a great threat, it's a sign you know jack shit about monetary policy.

29

@26 Well hey, good one you for selling high. But the correction is not some hypothetical future event. It's happening now, mostly do to trade worries. And it's a pretty ordinary and orderly consolidation. Now while it could easily be lower come December than it is now, but none of that would be "the mother of all crashes."

30

I agree with that @29, Mudede has overstated to some degree the effects of the dynamics he observes. SP500 bottoming around 2000-2200 would not at all surprise me, but massive crash, probably not.

31

We're headed towards a massive global shock, the result of which will likely turn to war unless we can weather the incoming time bomb detonation with grace.

32

I would say that Charles is the King of Clickbait.

33

First, the stock market is not the economy. The stock market represents the values of companies as perceived by the top 5 or 10% of the population, who hold the significant shares. The rest of the "poor" people might hold a relatively small percentage in pensions (ha, ha, what's that) or other investments. The economy is more about wages, unemployment levels, and cost of living.

Second, we may be in a bubble. It's not real estate. It's not the stock market. It's not even government employee salaries and benefits. It could be our national debt, which was still high from the great recession and has grown substantially under Trump. (You knew I would sneak that word in.) On the other hand, there's a substantially supported theory (Warren Buffet is behind it) that excessive debt used properly (i.e. not causing inflation), can actually help the economy. You can read about it: Modern Monetary Theory (MMT).

34

Only a Marxist would consider Politico to be right of center.

35

Federal deficits are often an excuse to not invest in social programs, that's true. But the US can run it's uniquely huge trade deficit (enabling all the debt) only because the dollar is the currency of global capital. And that requires imperialism. So there are two issues- one is the domestic distribution of wealth which absolutely could be be invested to better benefit the public. The second issue is that maintaining US global market hegemony in a world in which global distribution of wealth has been shifting away from the US requires increased militarization to eliminate any possible competitors. The growth is not sustainable otherwise, and then that debt really starts to matter. As a collapse would take most of the capitalist world with it, everyone is incentivized to play along, but only so long as there is no other really feasible global currency. As to the stock market, yes it has crashed before and yes it is different from the real economy, however, the reason we are doing OK now (for those that are) is because the fed has kept interest rates on the floor. Unless they discover a basement, the damage of the next crash will be more widespread.

BTW while Warren Buffet supports a wider redistribution of wealth through progressive taxation, he is not a proponent of MMT. In fact, he has spoken out against it. MMT only makes sense so long as you assume growth. It's pop economics.

36

"…the only peaceful political solution to the crisis will be a massive social Keynesian program…"

Except the capitalist class, which bankrolls both major parties ("We're capitalist." -- Nancy Pelosi), does not want Keynesianism, because that threatens to redistribute power away from them. They would prefer war and fascism. Liberals, fearing war above all else and posessed of a near-neurotic desire to be loved by everyone, including their enemies, abhor war as the ultimate struggle. So the capitalists and fascists (but I repeat myself) will offer the liberals the choice between fascism and war. The liberals will then choose fascism and get war as well. I would like to be more optimistic, but I really can't be.

37

@10 - Nice link, thanks. I found another useful report from the St. Louis Fed
"Measuring Financial Distress by Zip Code"
Looks rather dire. A significant portion of the US population is already in distress, another recession could really entrench the bottom half in starvation poverty...

https://www.stlouisfed.org/publications/regional-economist/first-quarter-2019/unequal-recovery-measuring-financial-distress

Good luck all you people who can afford to play the stock market...
love,
the rest of us
(sharpens the guillotine blade some more...)


Please wait...

Comments are closed.

Commenting on this item is available only to members of the site. You can sign in here or create an account here.


Add a comment
Preview

By posting this comment, you are agreeing to our Terms of Use.