Nov 19 2013

The Red Queen’s race and the real winners from Quantitative Easing: Celebrating the five year anniversary of redistributing wealth to the top.

The Federal Reserve is celebrating its 5 year anniversary of Quantitative Easing.  As the stock market reaches record highs, it is useful to examine the real winners from QE.  Luxury good purchases have done extremely well during this period as income inequality in the nation has reached levels last seen during the Gilded Age.  Yet for the average American worker, salaries are stagnant and wage growth is nearly non-existent.  After factoring in for inflation, many are stuck in having to run faster and faster just to stay in the same place.  The Red Queen’s race in Through the Looking Glass involves a race where you have to run faster just to stay in the same place.  Or in other words, trying to maintain a middle class lifestyle in an era of massive Fed intervention.  QE has made it harder for savers and most American families to keep up while the leveraged top has been able to maximize all the benefits of QE.  After 5 years, it is rather clear who the winners are.

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Nov 14 2013

The froth before another stock market crisis: Stock market is overvalued by 27 percent based on historical price to earnings ratio.

The stock market has once again become an overvalued casino where only the large financial players can use massive leverage to enjoy short-term rewards.  Even looking at historical price-to-earnings (PE) ratios we find that stocks are dramatically overpriced.  Yet the stock market is a sham for most Americans.  In fact 53 percent of Americans don’t even own any stock outright.  What is troubling is that for the first time in a generation, we are seeing real declines in household income occurring at the same time that the stock market is reaching all time highs.  This is the first time in 30 years that this kind of pattern has occurred.  This is playing out because the Fed has injected all sorts of liquidity into the banking sector expecting the financial segment of our society to responsibly guide the investment markets.  Of course, all that has happened is a large amount of froth is now spilling over and signs of a bubble are all over the place.

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Nov 11 2013

The two-income trap for Americans: How dual income households are a financial necessity in a time when the median per capita wage is $27,000.

Recent Social Security data released this month revealed that income disparity is only growing in the United States.  The released figures show that the median per capita wage in the US is $27,519.  Given the costs for college, healthcare, and housing many households are simply falling out of the middle class.  The two income household is now the common default for Americans.  However, in many cases the two income household has arisen primarily for economic necessity.  Many households today simply cannot get by on one income earner.  Especially if a family has children, childcare is expensive and a good portion of any additional income is diverted into this expense.  The decline of the middle class household would be more dramatic if it were not for the emergence of the dual income household.  Given demographic trends, it appears that we have peaked in this category and many young Americans have no choice but to live in households with multiple streams of income.  Many Americans learn the hard way that the two income household may actually be a trap.

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Nov 8 2013

The booming non-labor force in the United States: Those not in the labor force surged by nearly 1,000,000. A large portion of added jobs were in low wage sectors.

Any job is a good job for the headlines.  While one part of the BLS survey showed that US payrolls increased by 200,000 last month, another survey finds that nearly 1,000,000 Americans dropped out of the labor force.  That is right, a stunning 932,000 Americans simply dropped out of the labor force last month bringing our labor force participation rate to a new 35 year low.  More importantly, a large part of those200,000 added jobs were in the form of low wage retail and food sector jobs.  For the headlines anything is good news and the stock market continues to rally (even though most Americans don’t even own stocks because they are too broke once all bills are paid).  The drop in the labor force participation rate was not unforeseen but the current rate of growth is very troubling.  Of course, the Fed now “hints” at tapering but the evidence shows that the Fed is in soft default mode.  We have a boom in the non-labor force segment of our economy.

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Nov 5 2013

Arrested economic development: 36 percent of Millennials living at home delaying financial adulthood. Less than one-third of Millennials employed.

Young Americans are living at home in record numbers.  Millennials are living at home for much longer because of the poor economic conditions for the young.  Think about the perfect storm of financial pain for young Americans. College costs are astronomical and many are going into massive debt to pursue a college education.  If not, then it is very likely that you’ll end up in one of the top low paying jobs since we have decimated our manufacturing sector.  Next, because of low earnings, the median net worth of those 25 to 34 is zero dollars.  Do you have one dollar in your bank account and no debt?  Congrats.  You are wealthier than most young Americans.  A recent research report from Pew Research Center indicates this trend is still going on.  Many young Americans are delaying the biggest payment of being an adult, that of paying rent or a mortgage.  A stunning 36 percent of Millennials live at home.

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