Stocks up, wages up, unemployment down. How could the Midterms be close?

As a financial writer in real life, I find it odd that the economy is not being ballyhooed by the Republicans more during this Midterm election. Or should I say not mentioned in the media more.

Stocks, as measured by the Dow Jones industrial average, are up 25% since President Trump was elected.

No the only focus the stock markets get nowadays is the recent gyrations in October, which also overshadowed the latest wage data showing a pay raise of more than 3% according toLabor Department data released Wednesday. The wage gains make sense since there is now a decades-low unemployment rate.

An argument could be made that the recent stock pullback story has much to do with a concern that the Democrats could possibly win the House of Representatives.

Certainly Wall Street has a growing concern that Rep. Maxine Waters could take over the leadership of the House Banking Committee. The same Maxine Waters who told protestors to go after Administration members of Republican members of Congress if you see them in a restaurant or the movie theater.

It’s not a question of impeachment, because that will never be in the cards, since the Democrats will never have enough votes to get charges brought and passed onto the Senate. No the real question is what do the Democrats stand for economically?

There’s very little evidence of any economic platform or any platform except being anti-Trump. But no one calls them out on this.

A perfect example of this is in San Francisco, where the Democratic Mayor and city council want to raise real estate and business taxes to stem the tide of growing homeless people defecating in the streets among other quality-of-life issues.

Left-leaning Silicon Valley firms like Google and Amazon among others are squawking over having to pay more taxes. Threatening to move out of the city if they are forced to pony up cash to alleviate a problem they caused by moving in and distorting the cost of housing in the Bay Area.

So where is the left’s economic thought? Clearly tax and spend doesn’t resonate with its biggest boosters — California tech companies.

And I would say it does not sit well with many institutional investors as well.

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A US economic snapshot in the middle of 2018 — not all is well

Let’s take a quick look at the US economy and where it may be headed in the near term.

While unemployment is said to be very low, the rate is still artificially low due to the uncounted Americans no longer in the workforce because of chronic joblessness.

Producer and consumer pricing are rising — not because of tariffs as the left will cite — due to the excessive capital washing out of the stock and bond market. The stock price run up over the last three years was engineered by the Federal Reserve’s quantitative easing capital finding safe haven in stocks and bonds.

Now that capital is exiting the security markets and finding better treatment with private equity firms that are buying out manufacturing and consumer brand companies, which drives up prices in order for the new owner — the PE firm — to make money from the investment through putting the brands deeper into debt to make special payments to them.

So this capital is not from the average American, but the repercussions are being felt by these average Americans through higher prices. Look at the biggest PE firms raising record amounts for new funds.

Taking a quick look at the US bond market to see where the real problems are. The difference in return rates between lending Uncle Sam money over 2 years versus 30 years.

The 2-year return is 2.61%, the 30-year interest rate is 2.96%. The delta between these two 0.35 percentage points return over 28 years. This is what is called a flat yield curve, since the interest curve is very shallow.

In the environment of the bond market capital is not treated well at all with artificially low returns, so this is pushing additional big money out of the public capital markets and into the private funding markets.

What is the down side of this move? Look at the number of bankruptcies in the retailing sector over the last year. These stores: Toys R US and a dozen or so women’s apparel stores are all closed or limping along because these companies were so leveraged up on debt that they could not pay off their huge debt levels imposed on them by their private equity owners.

But don’t worry about these PE firms because they took their money upfront and more than likely owed some of the companies bonds, which were paid off in the bankruptcy.

Will we get a clue on June’s jobs number?

On Friday we get the monthly employment report from the government for June and be able to access the first six months of 2018.

Last month well before the 8:30am release time President Trump tweeted “Look forward to seeing the employment numbers at 8:30 this morning.” The tweet moved the market leading many to say he should not have done so.

Wall Street is expecting gains of 191,000 jobs for June, with the unemployment rate to remain at 3.8 percent. In May the jobs number was 223,000, which resulted in Trump’s tweet.

So if there is no tweet on Friday morning, then the Street may sell of prior to the release. This is the reason for not breaking the embargo by hinting a good number is about to come out.

Bernanke’s policies were certainly not a Roadrunner

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Former Fed chief Ben Bernanke was taking jabs at President Donald Trump’s economic stimulus and tax cuts on Thursday in DC to a like-minded leftist crowd.

Bernanke, whose monetary policies helped every institution in the US except the US consumer, says the stimulus will only have a short-term effect and that by 2020 it will peter out.

The former Fed chair sounding quite jealous  since he begged the White House and Congress for this type of economic plan for most of his term as Fed chief to help pull the US out of the Great Recession.

Bernanke using the cartoon character Wiley E Coyote to say the US economy will go off a cliff in 2020. This happens to coincide with Trump’s re-election campaign.

Bernanke — citing the amount of stimulus coming from the White House of  $1.5 trillion in personal and corporate tax cuts and a $300 billion increase in federal spending — saying these policies  “make the Fed’s job more difficult all around” because it’s coming at a time of very low U.S. unemployment.”

While the unemployment rate is 3.8%, the number really does not take into account people working part-time and wish to have a full-time job. It also does not count the people who longer collect benefits.

So to say the US is at full employment is disingenuous at best, since Bernanke knows he is citing flawed data to take a shot at the Trump White House.

I find it ironic Bernanke would use the Wiley E Coyote imagery since no matter what he did as Fed chief both he and President Obama resided over the first modern 8-year term that did not achieve a 3% annual GDP growth. So to suggest that Trump’s economic policies are basically futile and will fall off the cliff is very rich.

 

Bezos, Schultz and their pure hypocrisy in Seattle

The hypocrisy of Jeff Bezos and Howard Schultz is so absolutely delicious.

The blowback Amazon and Starbucks are giving the city of Seattle over a new tax being levied on employers to help fund homelessness programs in the city is classic “do what I say, not what I do”. Continue reading