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.
Falling profit margins typically precede a recession. Last week, the Bureau of Economic Analysis released the latest profit margin numbers that clearly point to an oncoming recession.
Notice how the last two recessions (shaded areas) came within six months of a -20% change from a year ago (red line). The only thing that is different this business cycle is the record low-interest rate. In other words, low-interest rates are what is propping up the economy right now. Not exactly a revelation but something you should watch carefully. If the Federal Reserve hikes rates too soon, we could go into a recession quickly.
Democrats do not want Yellen to raise interest rates before the election. Barney Frank recently told the Fed board not to risk destabilizing markets and perhaps the broader economy before the Presidential Election. The Federal Reserve is supposed to be independent and politically neutral in their rate hike decisions.
Why are Democrats so afraid? Hillary Clinton and Democrats are bragging about how much Obama improved the U.S. economy and how strong it is now. Are Democrats so scared of a little quarter point rate hike because they know how hollow the “Obama recovery” really is?
The ObamaCare lie that health care premiums would fall for hard working Americans is so insidious, I fully expect Democrats and Clinton to lose to Trump in November.
Here is Obama lying to the American people about how ObamaCare would lower working people’s health care premiums:
If you haven’t already heard from your employer, health care premiums are going up BIG in 2017.
For my family of 4, I pay $1,600 per month out of pocket for health care. In the 80’s, my dad paid $75 a month for a family of 5.
Folks, that’s a house payment. That’s why I still live in an apartment and will probably never make enough money to own a house.
It’s sick. All Democrats did was to take money away from working Americans, to pay for health care insurance for lower paid Americans or those unemployed. It’s a classical socialist “take from those according to their ability, give to those according to their need.”
After taxes, I only make about $2,400 a month. I’m paying out $1,600 of that in health care costs. I’m seriously thinking about quitting my job so I can get on ObamaCare. I mean is it worth working a 8:30 AM – 5:00 PM job for $800 a month after health care costs? That’s the core fundamental problem with socialism folks and why it doesn’t work. Every socialist country that has ever existed has failed because of this core fundamental problem. When you take from those according to their ability, you lower the incentive for people to use those abilities. When you remove most of the benefits that hard work offers, you eliminate the incentive for people to work hard, and you create a nation of lazy and dependent people. Increased dependency is why socialism doesn’t work and will always fail. In other words eventually, you run out of other peoples money to spend. With too few people working and paying taxes, the entire system collapses.
Why ObamaCare Is Failing
President Obama and Democrats thought that the expansion of the health care market by 50 million uninsureds would shift the demand curve to the right (blue line to red line above), which would lead to an increase in both the price of health care as well as the supply (blue star above). The supply part of the equation is where Democrats and Obama blew it. The supply of doctors and nurses is more inelastic than Democrats and economists thought. There is no rapidly expanding supply of physicians and nurses. Worse, Democrats are using lawyers to push down prices artificially. When the rewards of being a doctor are less, some doctors will retire. When the average wage of a nurse drops due to legal action by Democrats to lower costs, medical students will change their courses of study. Rather than produce medical equipment with low-profit margins, medical equipment suppliers will shift to markets not subject to government price controls. Even worse, Republican lawmakers are always threatening to do away with ObamaCare when they take the Presidency. What hospital or medical center is going to spend a lot of money on expanding supply to meet the demand of 50 million more patients when their not sure if ObamaCare will even be around in a few years? The result is that the supply curve is not moving but instead shifting back along the curve to the point where it intersects the dashed line marked by the red star.
Tom Bowler of PJ Media has an even darker supply and demand curve that I agree with. Mr. Bowler shows the inelasticity of the supply curve so severe that it shifts the supply curve to the left, creating a new equilibrium point with a higher equilibrium price and lower quantities demanded and supplied.
For health care reform to have any hope of success at bending the cost curve down there must be something in it that encourages a greater supply of health care services. We need to shift the health care supply curves from left to right. Without some technological leap — which is not something that can be legislated — this means increasing the supply of doctors, nurses, medical technicians, and other providers.
Tom Bowler wrote the statement above back in 2010 when most thought ObamaCare still had hope. Today, I think we have enough economic data and rising premiums to say that it’s been a total failure at the expense of hard-working Americans who don’t qualify for ObamaCare.
As supply is not increasing to meet increased demand, prices are rising even more than they would without ObamaCare. Many Republican economists warned that Democrats were wrong about health care costs going down as a result of ObamaCare, and they ultimately have been proven right.
The $1,600 I pay each month for health care for a family of 4 means I’m investing less. I’m not buying a house. I can barely afford my two car payments. I’m not going to the movies. I’m not going out to eat as much. I’m not buying as many clothes. I’m not shopping as much. I’m not buying my wife as much jewelry. I’m going more in debt. That’s the reality of the devastation that health care has reaped on the U.S. economy and in 2017 with the hike in premiums; it’s going to get even worse.