Stock Market at All time Highs! Are We In a Giant BUBBLE?

With the stock market hitting all-time highs, everybody wants to know if we are in a giant bubble.

You can’t trade and make money if you’re not in the market. If the fear that we are in a bubble is keeping you out, then you’re not making money.

The honey badger doesn’t care. The honey badger loves to climb walls of worry.

You can get an early read on which way the market is headed by tracking transports. Fedex is a bellwether stock in the transports industry.

The chart of FedEx just did a breakout above 180 and hit a new high. The rising Twiggs Money Flow shows FedEx is under heavy accumulation.

Remember folks, bull markets don’t die of old age, they are murdered by the Fed.

The chart below shows profit margins [blue] are falling as employee compensation [brown] rises.

Since 2015, employee compensation has started to recover as the labor market tightens and corporate earnings are falling (as a % of Net Value Added).

If you look back to the 1960s, you can see that when the labor market reaches capacity, profits fall as labor costs rise. The Federal Reserve intervenes to battle inflation from rising wages which will cause the next recession. The Fed does not usually intervene in a meaningful way until wages rise above 74% of corporate profits. In other words, we have a long way to go regarding rising wages before the Fed is going to hike rates so high that it causes the next recession.

Financial Education posted this video on if we are in a giant bubble. While I don’t agree with everything he says, he does make some good points IMO.

Trump Administration and Tariffs Versus Quotas

Protectionist policies in the form of tariffs and quotas are coming from a Trump Administration. It seems appropriate then that we examine tariffs and quotas from a macroeconomics perspective.

The two most common ways of restricting trade are with tariffs and quotas. From a political point of view and to prevent a trade war, a Trump Administration should consider the use of quotas over tariffs in some cases.
Continue reading “Trump Administration and Tariffs Versus Quotas”

Pharmaceutical Drug Pricing

Pharmaceutical drug pricing is all over the mainstream financial media right now. Let’s examine the macroeconomics of what is happening.

The demand for pharmaceutical drugs is inelastic. People that need a pharmaceutical drug prescribed by their doctor will demand that drug regardless of price. As the price of the drug goes up, demand mostly stays the same.
Continue reading “Pharmaceutical Drug Pricing”

Macroeconomics Of Rent Control

California, New Jersey, and New York have the most cities with rent control. Sanctuary cities in California like San Francisco and Los Angeles have some of the toughest rent controls. Rent controls hurt the local economy and make rental unit availability worse. Aggregate deadweight loss from rent controls across the country negatively impacts the US economy and hence stock market. Let’s examine what happens with rent control from a macroeconomics perspective.

In a free, non-rent controlled market, the price of rent is established by the market where the supply and demand curves cross.
Continue reading “Macroeconomics Of Rent Control”

Microeconomics and Taxation

Most government revenue comes from the taxation of transactions and labor. Taxes impact both the supply and demand curves. Taxes cause a buyer to pay more for something and suppliers to receive less. The loss of value for both buyers and sellers is called the deadweight loss of taxation. Taxation has an enormous impact on the economy and thus stock market. Traders and investors need to understand the effects that taxation has on the economy and thus stock market. We will examine deadweight loss from a microeconomics perspective, ending with a macroeconomics viewpoint.

In a market without taxation, we will say that a package of socks will sell at a fair market price of $14. This $14 equilibrium price is set where the supply and demand curves cross.
Continue reading “Microeconomics and Taxation”

A Macroeconomic Analysis of ObamaCare

ObamaCare has created massive shortages within the healthcare sector. In cities, it is common to wait many hours before being seen as hospitals have a shortage of beds. Doctors have stopped taking new patients as they are overwhelmed by the numbers of people coming to see them. Let’s examine what happened from a macroeconomics perspective.

ObamaCare caused more than 35 million people to demand health services. The idea was that when demand for medical services increased, it would shift the demand curve to the right (D1). As more people demanded healthcare services, supply would increase to meet that demand.
Continue reading “A Macroeconomic Analysis of ObamaCare”

Rising Wages Are What Will Cause The Next Recession

We all love rising wages, but it is rising wages that will cause the next recession and Bear market.

Below is a chart of labor costs (red) versus corporate profits (blue).
Continue reading “Rising Wages Are What Will Cause The Next Recession”