“Unshackled” Trump Signals the Next Financial Crackup
- Wall Street’s crack-smoking earnings outlook… and Stockman’s reality check
- Why an “unshackled” Trump heralds an immense financial crackup
- The new president’s stimulus package… and why it won’t happen
- Working-age men who don’t work, and the painkillers they take
- Why we talk about stock opportunities despite a crash risk
- Elite groupthink: Why late 2016 feels ominously like late 2002
Wall Street is winding down the week on a mellow note as earnings season moves into second gear. Enjoy it while it lasts.
After threatening to break below the 18,000 level the last couple of days, the Dow is up three-quarters of a percent as we write — at 18,239. Financial stocks are lifting the rest of the market as three of the Big Four commercial banks reported earnings: Profits at JPMorgan Chase are down, but they beat the vaunted analyst estimates. Ditto at Citi. And Wells Fargo too, although WF’s numbers are overshadowed by the specter of how it plans to recover from the bogus accounts scandal.
With earnings season underway in earnest, “It is worth considering just how absurdly overvalued the stock market has become under the Fed’s mutant regime of bubble finance,” says David Stockman.
Turn back the clock a mere two years: Earnings on the S&P 500 companies clocked in at $106 per share. It’s been all downhill since. “I seriously doubt they will even post at $85 for the period that ended in September,” David writes behind the paywall at his revamped Contra Corner website.
“So reported earnings will soon be down 20% from the eight quarters ago peak, yet the only certainty ahead is that this long-in-the-tooth, 88-month-old, so-called business expansion will soon slide into outright recession.”
The “expert consensus” on Wall Street won’t see it coming — figuring on S&P 500 earnings of $122 per share in the quarter ending December of next year. “That’s up 40% from the period just ended,” David points out, “and 44% from my estimate of how the current quarter will unfold.”
Are they smoking something in the canyons of Wall Street? “They are,” David says. “It amounts to the delusionary perception that the machinery of the bailout state is still in good working order, and that even if the economy should stumble, Washington will be at the ready with an emergency fire hose in hand.”
Alas, “there will be no Wall Street bailouts coming out of the Imperial City’s killing fields,” David warns. And the reason comes back to the election.
If you’re tired of reading about politics here, we’re equally tired of writing about it. But we ignore it at your financial peril.
Here’s the thing: Conventional wisdom says the new president — whoever it is — will enact a massive “stimulus” program during the first 100 days. Hundreds of billions of dollars will be poured into public works like highways, bridges, airports and sewers.
David says that conventional wisdom is way off the mark — and the “tell” is Donald Trump’s latest schism with the Republican Party establishment.
Trump saying the “shackles” are off amounts to “another flashing red warning sign that an immense political and financial crackup is just around the corner,” says David.
He expects a scorched-earth campaign from now through Nov. 8. As he said here on Monday, Clinton will emerge the victor — not with a resounding majority but a weak plurality, and multitudes of Americans whose loyalty she will never command. “I believe this preposterous election campaign will leave the Imperial City virtually radioactive as a matter of politics and governance.
“That means it will be incapable of any kind of stimulus or bailout early next year when the financial markets descend into meltdown and the U.S. economy slips back into recession. Indeed, the GOP will be in a state of civil war, if it survives at all, while the House will become a killing field for anything a mandate-less and politically crippled Clinton White House may propose.”
In other words, the cavalry won’t be coming the way it did when Obama took office in early 2009. “The Washington of 2017 and beyond will be the screaming opposite of the docile venue that wrote blank checks to the Treasury and Fed during the crisis of 2008.
“In fact, the Fed is out of dry powder and marooned on the zero bound. Likewise, there is no prospect that Wall Street’s fatuous expectation of an imminent handoff of the ‘stimulus’ baton to fiscal policy and an infrastructure spendathon will materialize.
“Accordingly, there is absolutely nothing to stop the third and greatest bubble of this century from crashing. And, more importantly, from staying crashed.”
[Ed. note: Today is publication day for David’s new book Trumped!: A Nation on the Brink of Ruin… and How to Bring It Back. Amazon is selling it for $17.98… and it’s out of stock.
But as an Agora Financial reader, you can get a copy today for only $4.95. Your copy will include a special bonus chapter with specific investment advice shaped by David’s decades of experience in Congress and in the Reagan White House and as an investment banker.
You’ll also get a 30-day trial to David’s daily Contra Corner emails… and instant access to a model portfolio to see you through these coming turbulent times. It’s an unbeatable package we’re making available at just the right time. David extends you his personal invitation to his inner circle when you click here.
As stocks continue to rally this morning, bonds are selling off, and gold is holding its own.
The 10-year Treasury yields 1.77% Gold broke below $1,250 briefly this morning, but at last check, the bid is $1,253 — not bad in light of more dollar strength. The dollar index is up to 97.9 — another seven-month high.
The data gods delivered a couple of numbers today: Retail sales popped 0.6% in September, helped by auto sales. Producer prices ticked up 0.3% in September; the year-over-year rate of change is starting to pick up the pace. Both numbers buttress Jim Rickards’ case for a December interest rate increase by the Federal Reserve — which he says will tank the stock market just as it did a year earlier, heh.
Could a nonaddictive painkiller bring legions of men back into the workforce?
Yesterday, we spilled much digital ink on the problem of chronic pain — afflicting one-third of the U.S. population at a cost of more than $500 billion a year in medical bills and lost productivity.
Shortly after we went to virtual press, we stumbled on new research from Princeton economist Alan Krueger — who finds that many working-age men who’ve dropped out of the labor force are in considerable pain.
One of the subtexts of this year’s election campaign is the number of men in their prime working years who aren’t working and aren’t looking for work. In 1954, the labor-force participation rate among men ages 25–54 was 98%. Today, it’s 88%.
Professor Krueger conducted a survey among these working-age men who aren’t in the labor force. He found 44% of them took pain medication the day before the surveyors came calling. That’s more than twice the rate reported by men with jobs. And of that 44%, two-thirds of them were taking prescription painkillers.
“This is a group that is particularly unhappy and distressed, that often faces significant health conditions which are a barrier to employment,” Krueger tells The Washington Post.
No doubt: As flawed as the job numbers are from the federal Bureau of Labor Statistics, the wonks who work there do come up with interesting raw data. Among them is this: “Fully 6% of American men between the ages of 25–54 feel that their minds or their bodies are too broken for them to work,” says the Post. “This rate has nearly quadrupled since 1968, when only 1.6% of men felt the same way.”
What the statisticians don’t ask is whether those prescription painkillers — we’re thinking opioids with addiction risks like OxyContin — are alleviating their pain or making them even more incapacitated.
Whatever the answer, we’re sure if science can develop a nonaddictive prescription painkiller, millions of men could return to the workforce and alleviate some of that $500 billion annual drain on the economy. To say nothing of making early investors very wealthy. As it happens, our own research team believes such a drug is nearing FDA approval. You can check out the details right here.
“I love seeing the report here on a financial site that we do indeed have a serious problem with chronic pain and its treatment,” a reader writes after yesterday’s episode.
“I would be willing to believe the level of pain has an indirect impact on the economy outside of the obvious. Chronic pain also interferes with rational decision-making skills, which leads to poor financial skills, etc.
“My personal and professional dealings with this issue make me something of an expert. Working with combat veterans to resolve PTSD requires me to address chronic pain daily. Alternative solutions I use, such as hypnosis and taiji, appear to offer greater results than medication. However, getting my work published and/or funded has been exceptionally difficult.
“One wonders why that may be, but in this singular opinion, I believe our economic future would improve if the patients I treat had the opportunity to create a more positive outlook to their own future. Thank you for opening the topic.”
“Funny how you guys push stocks,” writes a reader, “and then inform us of a stock crash that will happen late this year or early next year!
“If it’s a big crash, then all stocks will be negative, and if it’s a huge one, exchanges will close and stocks will be worth zilch!
“What’s your point in pushing one idea and killing it a couple of months after?”
The 5: It’s a fair question. But as we take pains to point out now and then, there’s always opportunity despite market turmoil.
We want you to take protective steps in the event of crisis, yes… but by the same token, we don’t want you to miss out on opportunities that can prove themselves immune to all those swirling “macro” forces out there. Even amid the Great Depression, fortunes were made from up-and-coming developments like radio and refrigerators.
Thanks for the inquiry. It’s especially timely in light of a theme we’re going to pursue next week, the election and volatility be damned. Stay tuned…
“Just wanted to say again that your political commentary adds nothing to the discussion and merely taints your economic commentary,” a reader carps.
“Hopefully, when the election is over, you can return to limiting the political discussion and stick to financial discussion. The last thing needed is to turn up the volume on the divisiveness and the venom that seem to be pouring out with this election.
[What are we being “divisive” about? We’re appalled by both the major-party candidates…]
“Do you really think that the Russians are the good guys in our current political affairs?
[Oh, now it comes out what’s really got your BVDs in a bunch…]
“Maybe you could try to play a constructive role instead of joining in on the name-calling and the attacks.”
The 5: *Sigh*
Believe it or not, our Russia musings aren’t about the election. They’re about an alarming groupthink among America’s governing and opinion elites — a groupthink of the sort last seen in the run-up to the Iraq War.
We took a lot of flak then, too. Over at The Daily Reckoning, Bill Bonner and Addison Wiggin were gently suggesting the White House, Congress and, of course, New York Times columnist Tom Friedman were slouching toward disaster. Many readers took umbrage and unsubscribed.
Bill and Addison weren’t taking a stand for the sake of being “political.” They were making an essential point about how hegemonic powers inevitably spread themselves too thin and drive their subjects into economic ruin. In time, they gave the subject a book-length treatment in 2006’s Empire of Debt.
Is there any doubt they were right? Credible estimates peg the cost of the Iraq War at $5 trillion, once you include all the ancillary costs like future medical treatment for combat veterans. That’s not chump change; it’s more than a quarter of the $19.7 trillion national debt.
The stakes are much higher now… because unlike Saddam Hussein, Vladimir Putin can actually fight back. A little bravado and/or miscalculation on either side and there won’t be any economy or markets for us to write about…
Have a good weekend,
The 5 Min. Forecast
P.S. If Putin is trying to jigger the election to favor Donald Trump, he’s doing a lousy job of it, no?
P.P.S. Here’s some more “inflammatory” Russia talk from David Stockman: “Neither America’s security nor its elections are threatened by a faltering kleptocracy that is just 7% the size of the U.S economy, and which has an annual defense budget of only $40 billion. That’s what Washington spends on ‘national security’ every 20 days!
“No, the real subversion of American democracy is entirely homegrown. It arises from the machinery of the Warfare State, the Welfare State and the vast system of interest group booty and racketeering that is the essence of the Imperial City.
“The candidacy of Donald Trump has, apparently, scared the living daylights out of the elites who are entrenched there and who prosper mightily from the mutant casino capitalism that they have foisted on the nation.”
That’s not to say David is enamored of Trump or what he stands for — far from it. But the Trump wave signals a crucial moment in history — one so important David’s written the new book Trumped!: A Nation on the Brink of Ruin… and How to Bring It Back. The publication date is today.
Don’t bother looking for it on Amazon; you’ll overpay, and it’s out of stock anyway. But we have autographed copies, complete with a bonus chapter exclusively for Agora Financial readers, laying out the No. 1 investment to own for the next six months.
It’s yours free — all we ask is that you spot us the $4.95 shipping. Claim your copy right here.