Wall Street Is One Sick Puppy
The robo-traders- both the silicon and carbon based varieties- were raging again today in celebration of a “goldilocks” jobs report. That is, the headline number for April was purportedly strong enough to sustain the “all is awesome” meme, while the sharp downward revision for March to only 85,000 new jobs will allegedly enable the Fed to kick-the-can yet again- this time until its September meeting.
In fact, however, the incoming data since February 20 has been uniformly bad.
Indeed, today’s jobs data was not bullish in the slightest once you get below the headline. Specifically, the number of full-time jobs dropped by 252,000 in April- hardly an endorsement of the awesomeness theme.
What counts is not the headline, but the trend; and when it comes to full time jobs there are still 1.1 million fewer now than at the pre-crisis peak in Q4 2007.
Needless to say, a net shrinkage of full-time job after seven and one-half years is not exactly something that merits a 20.5X multiple on the S&P 500 or 75X on the Russell 2000.
Thus, compared to the 0.35% rate since the turn of the century, full-time employment grew by 1.8% per annum during the prior 15 years.
Now how in the world do you capitalize earnings at a rate which implies gangbusters growth of output and profits as far as the eye can see, when the US economy is self-evidently trapped in a deep rut that represents a drastic downshift from all prior history?
The problem is that they blithely assume its the same old, same old cyclical track diagramed in the Keynesian textbooks of yesteryear. Well, let’s see.
Between 1985 and 2000, the adult civilian population (16 years +) grew by 34 million and the number of full time jobs increased by 26 million or by fully 76% of the population gain.
By contrast, during the fifteen years since the turn of the century, the adult population grew from 212 million to 250 million, but the number of full time jobs rose by only 6.2 million. In short, the nation gained 38 million more adult consumers, but only 15% of them have been employed as full-time producers.
And that dismal trend is guaranteed to get worse because its baked into the demographic cake. That is, today’s 45 million retirees will become 75 million less than two decades down the road.
In welfare state America its virtually certain that through one artifice or another taxes will go up and the national debt burden will rise to crushing heights in order to keep the baby boomers’ entitlements funded. While Keynesians and Wall Street stock peddlers are clueless about the implications of this- it actually doesn’t take too much common sense to get the drift. Namely, under a long-term path of fewer producers, higher taxes and more public debt, the prospects for rejuvenating the previous historically average rates of real output growth are somewhere between slim and none- to say nothing of the super-normal rates implied by the markets’ current bullish enthusiasm.
As we explained a few days ago, the growth rate of the US economy is in a profound downward trajectory. Based on even the deficient national income and products accounts (NIPA), the growth of real final sales has dropped from 3.6% per annum during the golden era of 1953-1971 to only half that level or 1.8% since the year 2000, and to only 1.1% since the pre-crisis peak in late 2007.So absent the Fed massive money printing campaigns since 2000 and the resulting drastic falsification of financial prices, cap rates or PE multiples would be going down, not stretching into the nosebleed section of recorded history.
But in a central bank driven casino, there is no honest price discovery or discounting of the forward prospects for business growth and profits.
Accordingly, today’s “goldilocks” chatter is no different than that of 2007 or 1999. It implied that the business cycle would never end, and that none of the self-evident structural and short-term headwinds, as readily evident today as they were at the two previous cyclical inflection points, even exist.
So the weakest recovery in modern times is on the verge of stalling out at a point in the business cycle when it is already long-in-the-tooth on a calendar basis. That hardly merits record valuation multiples,
but then Wall Street is not capitalizing the future; its simply frolicking on the Chuck Prince dance floor under the false impression that the music will never stop.http://seekingalpha.com/article/3168986-wall-street-is-one-sick-puppy?ifp=0=========================================================
Well, the fact is, the music is stopping & that has been the likely outcome for quite some time, as Governments (both Right & Left) concentrated on their own short term gains & those of their "supporters", whilst they disregarded the Best, long Term interests of the entire & greater Public!
The thing is, the "Best laid plans" of the Politicians & TPTB are now set to backfire on them, as well as everyone else!!!
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