You will hear these things on TV and read them in the papers- but they are false profits. The following are presented in the media and by investment advisers and analysts as true or good- but they are either false or bad.
1. There is global synchronized growth
The is entirely false. Europe, the UK, Japan, Italy, are all slowing. Even the US consumer is slowing. Central banks around the world wish to raise rates, but can’t. Instead, quantitative easing and artificial stimuli abound across the world. The US even still has bonds on its balance sheet from years of quantitative easing. Even China is slowing. There is a global synchronized slowing.
2. We have full employment.
This is both false and bad. The employment participation rate is low. To the degree people are employed, wages are forever stagnant (as much as the Fed wishes to blame rate hikes on upward wage pressures). The reason?: Large companies, like Amazon and Home Depot, are growing fast, while they put small retailers out of business. Try to find 2 hardware stores in your town anymore, or 2 bookstores. Large companies are taking over the labor pool, giving better benefits, but lower wages. The idea of local small business in America is all but disappearing, along with income growth.
3. We will have wage pressures soon.
False. We will not.
4. Housing is strong.
This is completely false. People can’t afford to buy bigger and better homes because they paid so little for their own home in 2010-2013, or have low mortgage rates from these time periods. This includes all the investors who purchased and rent the homes out. So no one sells, and that bottleneck trickles down so that starter homes area unavailable. This is a sign of economic sickness- not health. Prices are up because transactions are down. Supply is low. In a healthy housing market, transactions and prices should align. Prices should rise while transactions rise. It reflects growth and capital flow through an economy.
5. At least prices are low thanks to the Internet and Amazon.
This is bad. We have been trained to trade rising wages for low prices. Large companies get larger and larger at the expense of small business. Their scale allows them to trade margins for volume, so bigger is better- except for labor; and prices stay low while incomes stay low. But the largest companies with the most scale are getting wealthy, while average Americans and small business owners are getting squeezed.
6. Tax cuts will save the day.
Potentially false. Only if capex comes through by businesses en masse will we see job and/or wage growth. If the consumer seems week, businesses will not engage in capex en mass.
7. As long as the yield curve does not invert, we’ll be okay.
Not true. Higher rates will be harmful to businesses and consumers. Higher rates and a slowdown can lead to a “later” flattening and inversion … especially as rates are artificially high due to Government interventions, such as Treasury auctions and quantitative tightening, rather than due to growth.
8. China is strong.
False. Not only is China deleveraging to slowdown its own bubbles, US money borrowed from US banks- or invested directly by US investment banks- is in China’s real estate market causing the US to have systemic risk.
9. The US is growing.
False. GDP is down, payrolls are down (in some months), consumer spending is down (in some months), pre-tax corporate profits are down, wages are stagnant, the yield curve is flattening.
