The stock market correction has arrived: Massive global volatility, central bank wizardry, geo-political instability, and people finally realizing how overvalued the market has become.
The stock market is finally reflecting the true nature of the global economy. There is massive geo-political instability, central bank double-speak, and a growing trend of low wage labor. In the US, it is no surprise that subprime auto debt has grown at an outstanding pace simply because people are too broke to finance a car via traditional means. The S&P 500 has essentially given back any gains of 2014 within a couple of weeks. Volatility is now apparent as market participants realize that the free world cannot be controlled by plutocrat central bankers and their banking wizards. The market has turned into a deep capture casino where politicians serve as mouthpieces to placate the public and keep the wheels turning so people can remain calm when many real issues are obviously present. This isn’t merely a US issue. Worldwide countries are taking a piece out of the easy money playbook and the ramifications are being felt. There is no free banking lunch. The stock market correction is now here.
The stock market is finally recognizing severe global volatility: Stock market has worst performance in two years.
Volatility in the market came roaring back this week. Stocks had their worst weekly performance in two years. It was hard to understand given the interconnected nature of the markets how little of an impact was being had in US stocks when global markets and governments are facing dramatic challenges. The markets are slowly coming to the realization that the Federal Reserve simply does not have all the answers to every crisis that arises. A low interest rate is not going to stall geo-political risk or the spread of infectious diseases. There are more complicated forces at work here especially when the biggest consumer economy in the US is seeing those exact consumers lose purchasing power with inflation. There wasn’t any significant news that set the markets off this week aside from trends that have been ongoing for some time now. It just appears that the markets are reflecting a more realistic position of what is happening around the world.
The new subprime is in auto loans: One third of all new auto loans are of the subprime variety. Repossession are up 70 percent.
Leave it to Wall Street to resurrect the subprime loan. This time, subprime has found a comfortable home in the automotive industry. In the car addicted US culture, subprime debt is back in a massive way. Subprime auto debt is the new risky debt product. This is a big deal. $924 billion in total auto debt is rummaging around the economy. What is even more disturbing is that delinquencies on auto debt are surging. Repossessions are up 70 percent because people simply can’t make their auto payments. What do you expect when you are pumping out subprime debt trying to churn more sales on marginal buyers? Most Americans are living paycheck to paycheck so taking on another debt payment isn’t necessarily a wise move. How big is this market? The latest data shows that a stunning one third of new auto loans are in the form of subprime debt. This is telling given that FICO is planning on being more lax with credit scores. Also, it should tell you about the underlying health of the economy when a large portion of your borrowers have marginal credit.
Those not in the labor force but looking for a job now rose last month: The funny numbers behind the unemployment rate.
Those “not in the labor force” Americans continues to expand while the headline unemployment rate continues to decline. Some pundits will try to argue that this number does not accurately portray those looking for work. Well how about a category called “not in the labor force, want a job now” for categorizing those looking for work? We actually have a category that specifically looks at those not in the labor force but wanting a job today. And that number went up by 90,000 last month while the unemployment rate fell. Depending on how you define a healthy economy, you can find data that largely supports the broad case that most Americans are falling behind while a smaller portion is doing exceptionally well. Some of this is part of the new economic framework of a system largely dependent on financialization. It is odd to see those looking for work rise while the unemployment rate drops.
Inflation over 270 years: It is hard to feel the tornado of price erosion when you are standing in the eye of the financial storm.
People tend to be creatures of habits. It always intrigues me how most of the people I speak with seem to already assume that prices will always go up. It is the default life position. They know the sun will rise, grass will typically be green, and prices over time will go up. While some are based in natural law, inflation is and will always be a human made condition. So it is important to step back from the day to day operations that guide us and actually look at where prices stand today in relation to history. I think most in the US really don’t have the fear of say South America or Europe when it comes to inflation because they have never witnessed a full crisis driven by out of control money policies. Today, we are told that inflation is low yet when we actually step back, inflation is already eroding the purchasing power of the middle class dramatically. It is usually helpful to look at history as to learn from our past.
When income growth hits a brick wall: From 1949 to 1979 over 60 percent of all income growth went to the bottom 90 percent. After that, things changed for the middle class.
People routinely wake up every day, grab breakfast, and hurry out of their door to work. Most are merely running on a treadmill trying to make sure they have enough money to pay the bills that come down like a torrent of water. Is this pinching of the wallets really a shrinking of the middle class or is something else going on? If we examine income growth after World War II we find convincing data that yes, people are feeling financially pressured because income growth is simply not occurring like it once did. Most of the gains are not going to the working and middle class. Healthy income gains with steadily rising prices allowed many Americans to truly increase their standard of living. Today, you have many items including housing, healthcare, and education quickly outpacing any income gains to be had. On top of this situation you have many other costs being thrown onto the public including rising healthcare costs and the need to save for retirement. When we look at retirement figures the numbers are troubling. Most will need to work until their heart stops beating on that treadmill. Many are feeling poorer because in many measurable ways, they are poorer.
Primed for work but out of a job: 1 out of 4 Americans 25-54 not working and the continued expansion of those not in the labor force.
For most Americans, the best indicator of a healthy economy is having a job. With many Americans entering older age, the number of those not in the labor force is booming. It doesn’t appear to be on the radar of people that the reason the unemployment numbers look the way they do is because a massive number of Americans simply are not counted in the labor force. This ability to ignore a large portion of your population allows the numbers to appear better than they are. But this is for the entire US population. If we look at those 25-54 we find that 1 out of 4 is without a job. This is the prime working years for many Americans. The Great Recession has been a challenge for many working families. The lack of good paying work, weaker benefits, and inflation has dug deep into the pockets of many Americans. When 1 out of 4 Americans in their prime working years is out of work, something else has to give.