— What’s wrong with this headline? I believe a lot.
— A quintessential example of the media turning a silk purse into a sow’s ear
— Most of America should be celebrating the economy. If they are not it is because the media is telling them things are bad.
What is wrong with my title headline?
Barron’s columnist, Randall Forsyth, has given kortsessions a wealth of material to counter over the years. For this I am deeply grateful. He did it for me again this weekend. The basic theory behind “Stocks Hover Near Their highs … ” is that the fat cats invested in the market have reaped a huge gain so far this year, up “$9.7 trillion –some 23.7%–in the year through Friday, according to the FT Wilshire 5000 Total Market Index.” It hasn’t trickled down to Main Street. This is evidenced by the University of Michigan confidence index showing that their confidence in the economic outlook is the lowest in a decade.
Why the dichotomy? I believe the blame resides with the media, media with a total lack of understanding in economic matters, media with a political agenda and media that knows bad news sells, both right and left leaning. On the right is the message of “we told you so.” We told you ‘give the Dems the reins of power and we would be in for trouble’. INFLATION is that trouble and it is all their fault. On the Left it is worry about increased INFLATION and how this issue (a major opposition talking point) will play with voters at election time.
I will not go into the cause and effect issues that seem to be totally cast aside in this debate. Suffice it to say both parties share in inflation’s making.
The quintessential example: Silk Purse into Sow’s Ear
There is a silver lining to this story. You hear about it every day but the media never really connects the dots. The silver lining is that the $7.35/ hr minimum wage now seems gone, a relic of the distant past. Millions of low wage workers have received tremendous hourly wage increases in the past year. We are talking easily 50% to 100%. This may not have lifted them totally out of poverty. Nonetheless I would imagine in their shoes this type of raise would be somewhat life-changing. It would certainly offset the 6.2% consumer price index increase year-over-year in October. The labor market to their benefit remains tight … our ‘silk purse’. But for some reason all you hear is the ‘sow’s ear’: “That’s because they know, regardless of what the numbers say, that their incomes are declining in real terms. Employment is up, (aggregate) wages are up, but not as much as prices.” The guy who just took a job flipping burgers at $22/hr probably thinks he’s died and gone heaven. In my opinion every dime he or she makes will be heading right back into the economy’s growth. It will not be saved. Importantly, this wage gain was not legislated.
Main Street Should Be Celebrating the Economy and Job Market
According to Forsyth’s article. “the U.S. practically is at full employment, even though the official jobless rate is 4.6%. But some five million people have left the labor force since the pandemic started, with most of them over the age of 55, according to Goldman Sachs economists, resulting from early (1.5 million) or regular (one million) retirements.”
“The strength of the labor market can be seen in the latest Job Openings and Labor Turnover Survey, which showed 10.44 million openings at the end of September and a record 3% quit rate.” If Americans lack confidence in the economy, why is the quit rate at a record high? None of this is positively portrayed in the media.
In my mind when you take into consideration the unprecedented (coming out of the 2008-2009 financial crisis we only received $700 billion in stimulus) combination of the $2 trillion unfunded tax cut we got in 2018, $5 trillion plus in covid stimulus and the upcoming $1.2 trillion infrastructure package just passed by Congress, the United States has a pretty good runway to boom times in the next few years. Yes, inflation will likely be with us at a much higher rate and for a much longer time than transient camp is calling for. It will probably not be as bad as the media seems to be contemplating because bottlenecks will clear and new supplies will come on to meet the higher prices. Yes, this great bull market will end badly. The long history of financial markets tells us that. I cannot predict the cause or timing, but I’m not ready to hang crepe just yet. I believe we have further to go.
What do you think?