Global Giddiness at a Cyclical Peak?

The financial system’s interminable endgame continued last week with a hiccup in global markets that was attributed to liquidity problems at a Portuguese bank. Some might have hoped Europe’s problems were behind us, especially with the spate of ginned-up stories concerning Spain’s miraculous economic recovery – if not in statistical fact, then speculatively in the shrinking spread between yields on Spanish paper and the debt of countries whose economies remain a few more steps distant from eclipse. Most of us, however, recognizing that any country with 30%+ unemployment among college graduates cannot in fact be recovering, view the news from Spain as patently false. Europe’s ongoing economic implosion has merely been masked by yet another, increasingly faint, upswing in the mood of investors with memories so short they evidently cannot recall the Great Financial Crash of 2007-08.

In the U.S., a different kind of story, just as false, has sustained the upward trajectory of the stock market. The economy has been creating more than 250,000 new McJobs jobs per month lately, supposedly recouping all of the positions lost in the 2007-08 crash. With unemployment now running at a dubious 6.1%, the Fed is finding it easier to pretend that the recovery is sufficiently robust to stand on its own. To drive home this point, which no one actually believes, and to further “manage” our “expectations,” quantitative easing is scheduled to be phased out in November.

Fed Pretends to Dither

We read furthermore that the Fed has been dithering more intensely than ever over the question of when it should tighten. I remain quite certain that this will never occur, at least not deliberately, since subjecting a quadrillion-dollar derivatives bubble to even a small turn of the screw could trigger the collapse of the  entire shoddy edifice.  How many of us believe the recovery story even now?  Certainly not those on the lower-to-middle rungs of the economic ladder. Working-class Americans appear to have dropped off the ladder entirely with reports of a spiraling collapse in sales at Walmart, Target and Kohl’s. By contrast, Rolls Royce is having its best year ever, and $10,000 wrist watches are practically flying off the shelves. Will the erosion of spending power that has laid waste to much of the middle class eventually trickle up to the super-rich?  Probably not to any significant degree. Regardless, as someone pointed out in the Rick’s Picks forum last week, the uppermost 0.1% cannot sustain the broad U.S. economy for long, let alone forever. This fact holds particular significance for the residential real estate market, where sales and prices remain buoyant only in the  $1 million-and-above category — which is to say, in the category in which buyers pay cash, much of it drawn on margin from their brokerage accounts.

Regarding the stock market,  although most investors recognize by now that the spectacular rise of shares has been driven by money from trees, the question grows as to how long this can continue.  Bulls can be forgiven for tuning out those of us who have been shrilly predicting the Mother of All Tops for, um, years.  At the risk of making yet one more errant  prediction, we’ll state for the record that an epic top appears imminent, and that the subsequent crash will come with such speed as to leave permabulls and bears alike gaping in awe. Before you dismiss this forecast out-of-hand, check out  the chart above from ZeroHedge, which never tires of pointing out that the Emperor is wearing no clothes. It shows an S&P 500 Index priced for perfection and still rising, even as GDP estimates continue to fall sharply. Keep in mind as well that actual GDP growth for the last quarter was minus 2.9%, and that no number even remotely that bad has ever been reported when the U.S. was not in recession. Under the circumstances, we should look for a feeble bounce in Q2 earnings at best, and for the statistical resumption of a Great Recession that for tens of millions of Americans never ended.

  • mario July 22, 2014, 3:18 pm

    $6 Billion for the Wall Street Wizards and D**ck for the middle class…welcome to America…

    “….But Levin and McCain both said the use of so-called basket options deprived the Treasury and was unfair to U.S. taxpayers. “These banks and hedge funds used dubious structured financial products in a giant game of ‘let’s pretend,’ costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation,” Levin said. McCain said hedge funds “cannot be allowed to have an unfair tax advantage over ordinary citizens.”

    Oh yea said daddy! “bad boys, you cannot watch Elmo if you don’t eat your vegetables..! Its unfair!…Slap!….um, but what about that $6 billion…oh well…its, er um…

    The report said the banks and hedge funds used the basket option structure to open trading accounts in the banks’ names, creating the “fiction” that banks owned the account assets. But in fact the hedge funds exercised total control over the assets and executed all the trades. The funds often exercised the options shortly after the one-year mark and claimed profits were eligible for the lower income tax rate.

    In Renaissance Technologies’ case, the subcommittee said using basket options to treat short-term gains as long-term gains allowed the hedge fund to avoid more than $6 billion in taxes between 2000 and 2013. The subcommittee did not give an estimate for George Weiss Associates.

    Jonathan Gasthalter, a spokesman for Renaissance Technologies, said in an emailed statement that the fund believes it followed tax laws.

    “We believe that the tax treatment for the option transactions being reviewing by the [subcommittee] is appropriate under current law,” he said. “These options provide Renaissance with substantial business benefits regardless of their duration.” Renaissance has cooperated fully with an Internal Revenue Service review of the transactions, he added.

    Deutsche Bank DB -0.86% spokeswoman Renee Calabro said the options offered by the bank “were at all times fully compliant with applicable laws, regulations and guidance.”

    I just loathe the fact that they are all a bunch of grand-standing a-holes who talk to look good but are going to DO absolutely NOTHING to shut down the schemes costing the country billions, taking billions a day out of the hands of citizens while the FED keeps propping up the billionaire bankers…

    Cheers, Mario

  • mario Cavolo July 19, 2014, 3:51 am

    Rick! Heads up! Your Global Giddiness post is right now a featured Linkedin Pulse headline article… Ha, I know you hate ’em, oh the hypocrisy! Cheers, Mario.

    &&&&&&

    Funny. They “selected” me to contribute content, but I’m still not sure what they meant. I didn’t respond, but their republishing me is of a piece with reaching into my Outlook .pst file just to let me know that names/addresses I’ve retained in Outlook of friends who departed this world as long ago as ten years are, um, dying to have me Link them. RA

  • VILE VLAD July 18, 2014, 11:55 pm

    I was going to write herein 3 days ago, russia was close to admitting full war, with ukraine.
    (I think the new ukraine president is a total egomaniac billionaire idiot, a wannabe putin,
    and I expect him to be assasinated by a lone crazed gunman –ussa style– before 2015).

    yesterday’s kill of a civilian commercial airliner, was a humongous snafu by 1 of putin’s boys;
    that has setback putin’s well laid, patient plans, to take over 100%, east ukraine, crucial for him;
    and if you don’t know why it’s crucial, are because factories there, make his bombing armaments.

    it was a major [screw-up] by one ruskie reb, shooting down that commercial civilian, 300 souls flight
    (since I doubt ukraine did it, even though they might have, for westerners to commit to their side).

    and all I thought about was, was this today’s duke ferdinand, exactly 100 years past?

    because the ussa market is waaayyy top heavy.
    in mega alltime absurb complacent leverage high.
    so all it takes, are a few % points down… then, suck sound.
    for all of it to all topple, and break, like a fake humpty dumpty.

    I say– cut in half, in one week.
    8,000 dji. in just, one week.
    and all it needs, is a spark, to start.
    somewhere, between 5% to 10% down.

    meanwhile, china strengthens further.
    worldwide. and in every aspect.
    I got all the links, to prove it.

    ussa is [screwed]. indubitably.

  • ter July 16, 2014, 9:15 pm

    Vlad- The happy-go-lucky Mays was the simple, honest, unsuspecting sort who would have 90% of his income hijacked. Remember, there weren’t sports agents in the ’50’s and ’60’s to protect, theoretically, their clients’ interests. Getting back to Joe Louis, like many prize fighters he was uneducated,, and, was, probably, exploited by managers, trainers, and so forth,who took their cut of his purses, as well as handling his money for him– not including paying his taxes, evidently. He died owing the IRS in excess of $1 million, based, I believe,on taxation at 90%. Summing up, you’re right: some paid 90% rates, but they weren’t Wall Street lawyers, financiers, and business magnates, FDR’s pretended targets–the malefactors of great wealth.

  • ter July 15, 2014, 7:10 pm

    Jackson– The 90% rate on federally taxed income was applied only to the unwary or ignorant, like Joe Louis. Tax planners enabled avoidance, via investment in land, for example. For the middle class, except in tax-crazed venues like New York City, personal and dependent deductions, adjusted for real inflation since then, would approximate $11,000 to $12,000 today, and that may be an underestimate. Social Security (OASDI, technically) taxation–the rates and the income ceiling on which they were applied–was so inconsiderable as to be unnoticeable. Sales taxes were minimal, as were property taxes, in most states. Excise taxes on tobacco, beer and wine were light. The weight of government at all levels was unfelt. The federal tax code favored families, disadvantaged the unattached. The Democrats changed that in the early ’70’s, as I recall, imposing hardship on families, for a minor benefit to singles. About that time the value of personal and dependent deductions began a steep decline, given the decade’s sustained high inflation rates, even then underreported.

    • Chuck July 15, 2014, 9:36 pm

      we now have a ‘Yoga’ tax in the MD/DC area……not sure if that is on Yoga equipment or just the classes themselves….

  • Jackson July 15, 2014, 5:36 am

    It’s amazing the 1950s and 60s were so great despite taxation up to 90%. It should have collapsed.

    • ANARCHIC VLAD July 16, 2014, 3:34 am

      ter, I don’t know about 60’s taxation,
      but I tend to recall almost all I’ve read.

      recall I read article about ‘say hey’ mays,
      making an amazing 100,000 bucks a yr.
      yet he only took 10k home, due to 90% tax.
      and 10k a yr was a lot of money in those days.
      however, he made 100k! but the govt., stole 90k.
      weird indeed. actually read an article about this, 40 yrs ago.
      for I would KILL anybody, don’t care whom, who’d try to take 90%, of what I earned.

  • REVOLTED VLAD July 14, 2014, 11:47 am

    “the best is yet to come… you ain’t seen nothin’ yet…” sinatra lyrics.

    and here are some links, to the surely comin’, mega big mess.
    I’ll start with the top– tulip mania. I was amazed to see, that it happened, in only 1 half year.
    sort of like bitcoin, pretty similar, chartwise. btw, IMO, both are worthless village fool trinkets.
    http://misterios.co/tulipomania-la-fiebre-del-tulipan-que-casi-llevo-a-holanda-a-la-quiebra/

    this is an insightful, succinct article, on current market situation, of history of ussa market,
    which bodes very badly,
    http://www.marketwatch.com/story/dow-17000-is-on-the-wrong-side-of-history-2014-07-08?siteid=yhoof2

    from good old buddy prechter, here’s a dandy, about what’s a comin’,
    longterm historically, based on societal MOOD, which is his primary theme, over all—
    weird indeed.
    here are quotes from him, re this REBOUND period, historically preserved–
    “among the characteristics we should expect to see in wave b are: “Technically weak,” “Aggressive euphoria and denial” and “Fundamentals weaken subtly.” The volume contraction in the stock market has now lasted over five years, which is extreme technical weakness, albeit only in that indicator. The 30+ charts we have shown of market sentiment reveal historically high levels of optimism regarding stocks. No doubt bulls would dismiss the idea that investors today exhibit “aggressive euphoria and denial.” http://www.elliottwave.com/freeupdates/archives/2014/06/26/Check-out-this-Unprecedented-Bear-Market-Formation-Since-2000.aspx#ixzz37Qx7G5bt

    but here is more, to freak you out, from prechter’s ewi, re current market’s utter insanity—
    http://www.elliottwave.com/freeupdates/archives/2014/06/24/Crazy-Behavior-in-the-Bond-Market-(As-Stocks-Complete-a-Historic-Pattern).aspx#axzz36iKkaSLj

    our entrails will soon be ripped out. en masse. haha. for a generation, or more.

    • Jason S July 14, 2014, 6:46 pm

      The one part of Prechter’s analysis in the second link you provide is he states that no one fears default. I would say that is not it precisely; I think it is more true to say that they believe they have rigged the system so that if there is default they will be protected. We have fostered a huge level of moral hazard and this run up since 2008 is the evidence. This leads to the best govt. money can buy, loss of liberty, etc. etc. But the common dolt out there cant be bothered with such things, they have far more important things to do (I am not sure what though since most people don’t even want to be troubled by the simple task of thinking for themselves.)

      • Chuck July 14, 2014, 7:09 pm

        I blame the younger generation’s lack of world knowledge on being caught up in this social media crap…..being nosy and worried about everyone else and what they think about them, instead of any and everything else.

        &&&&&

        The worst thing about all of the ‘social media crap’ is that everyone under 40 hugely overrates its importance. Like TV, however, the evolution of the medium has not been for the purpose of improving our lives, or even of entertaining us, but rather for commandeering our attention so that advertisers can tailor their ‘message’ very precisely to individual consumers.
        RA

      • gary leibowitz July 15, 2014, 3:40 am

        Rick, Bingo! I just stated that Advertising Agencies must be having a field day.

        Chuck, you really can’t blame a generation that was brought up by the morals and rules set by their parents. The roaring 20’s were a perfect example. Enough jobs, free time and stable economy creates apathy and complacency. Human nature. We do however have a great capacity to adapt to major changes in a way most species can’t. This current generation hasn’t really been tested yet.

      • mario July 16, 2014, 3:07 am

        and its even worse than that with the integration of smart phones/tablets enabling us to do more and more on the devices, and in an instant. The device is now a:

        wireless phone
        wireless video phone
        VOIP
        chat messenger including file transfers
        voice messenger
        browser
        camera/video
        instant wireless POS purchase terminal
        bank accounts full secure access
        investment/brokerage account access

        All magically integrated and connected to unlimited cloud storage and online based products/services

        Hell, what’s left? There’s even apps to control and connect you remotely to your home appliances, lights & security system, monitory your vitals.

        Social/tech Revolution with a capital R times 1000.

      • Stephen G July 16, 2014, 4:58 am

        “I blame the younger generation’s lack of world knowledge on being caught up in this social media crap…..being nosy and worried about everyone else and what they think about them, instead of any and everything else.” – Chuck

        Right Chuck.

        Baby boomers, the most gilded generation in human history, weren’t self-absorbed AT ALL!

  • John Jay July 14, 2014, 5:40 am

    As long as the US welcomes Global Buccaneers and their loot, no questions asked, we will probably avoid collapse.
    We are already well on our way to a two tier society/economy.
    Our indiginous Yakuza and their ex-patriot bretheren will live at the top in wealthy, gated communities in prime areas.
    The rest of America will slowly go Detroit.

    As far as the future of the Matrix like stock and bond markets go, I don’t see anyone capable of calling their bluff, and forcing a sell off.
    The entire planet is running the same con, Germany just said, never mind, you can hang onto our gold, we don’t need it back after all.
    That was their opportunity to call our bluff.
    And they threw in their cards instead of making tidal waves.
    We are off the map in terra incognita for sure.
    I sure hope they can keep it up indefinitely.
    If 100 million Americans are forced off the dole overnight, it will be Mad Max and Barter City time!

    • REVOLTED VLAD July 14, 2014, 10:23 am

      amerika will soon go down EXPEDITIOUSLY down detroit, and not slowly, jj.

      and as far as germany goes, I concur. germany today, is anyone’s beatch to take.
      ergo– weak (‘reasonable’) merkel is on the out, a sell-out. but the ‘home’ party,
      there, will reign. and what is that. the typical brilliant hard kraut way.
      for smart krauts are ‘mad as hell, and they ain’t gonna take it anymore.’
      they is dropping out of eu bs union. once merkel is long gone.
      not far away.
      the entire world, from 1st to 3rd, is in major turmoil.

      so right your ship, and get yourself out of dodge. whatever your dodge may be.
      or arm up.

      &&&&&&&

      Vlad, instead of the usual repetitious rants and diatribes, and links to the thoughts of others, how about some thoughtful reflections of your own? RA

      • ANARCHIC VLAD July 16, 2014, 3:19 am

        I have much more evidence of what I cited since early 2014, of china/russian consortium.
        to overthrow weak ussa’s power, over world. much more evidence. since it it now, obvious.
        even to you. haha.
        so ask me nice, and I’ll provide info, so you can pound chest about it, in next week’s blog.
        haha.
        you are funny, though. dumb, but funny.
        and why do I say dumb? because you are nearly always playing, yesterday’s news.
        boring.
        the ussa is long gone and dead already. don’t you fucking get it, droll troll head?
        and it doesn’t bother, you don’t get it. but it is boring, in twice cited quote above,
        that you parade, your dulled sullen ignorance, of it. for there is no doubt.
        the ussa is dead.
        yet still a zombie, flaying about, still thinking, it ain’t dead. yet it surely is.
        haha.
        I crack myself up.

    • ANARCHIC VLAD July 16, 2014, 4:18 am

      john jay, re reagan, reagan was no worse a citizen-sellout, than any other ussa pres.
      first, reagan was the first elected ussa pres, in around a hundred years at least,
      that was not already, an ‘insider.’ reagan’s win was a fluke, over expected bush sr.
      and actor reagan was not only dumb, but a novice, in these world-stage matters.
      and he made plenty of ‘inappropriate’ comments, about those whom rule world.
      ergo—he was assassinated (or, almost assassinated, except for idiot that got in the way),
      and so took 1 close range bullet, of 3 that were meant for him–to shut him, the fuck up.
      and he survived the ordeal whole (and fuck dummy that took 2 of his 3 his bullets).

      however, after that near death scene, reagan was never the same again. he just obeyed.
      so, his selected entire cabinet, were all insiders. and all his ‘decisions’, all controlled.
      so do not write about ‘for whom the bell tolls.’ as it rings for thee–‘entitled’ amerikain.
      for there is such typical ussa arrogance in your speech, jj, that you see nothing else.

    • mario July 17, 2014, 3:27 am

      You hit the mark here JJ, the global buccaneers are stepping in and the tide of it is rising, just like I said it would and their eyes are slanted and yes, it is going to go along way to mollifying U.S. economic woes…

      Cheers, Mario

    • mario July 17, 2014, 3:43 am

      The future of the U.S. greatly impacted by:

      “According to data from Real Capital Analytics, the Chinese spent $4.3 billion on commercial property in the United States in 2013, more than in the previous five years combined. The country is easily the fastest-growing source of foreign direct investment in the U.S., and Boston Consulting Group has predicted that Chinese offshore assets will double over the next three years….“The trend for Chinese companies going abroad has just started,”… http://www.salon.com/2014/01/18/how_china_could_save_detroit/

      I indicated clearly this was going to happen, you can expect the Chinese tide of capital to America to continue rising strongly. Note the $4.3 billion mentioned is in commercial property, not residential… they just plunked down $3 billion in Virginia too, Detroit won’t have a “Chinatown”, it will be Chetroit soon enough.

      Cheers, Mario

  • gary leibowitz July 14, 2014, 5:15 am

    While I agree with the premise that the middle class has been losing the battle, the real story is that we have had flat wage growth adjusting for inflation since 1964 when the Bureau of Labor first reported these stats. There are some reasons why we are staying afloat. The wage figure ignores fringe benefits like health care, pensions, paid leave which amount to over 30 percent of total compensation. The average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades. Since almost all lesser-skilled workers entering the workforce in any given year are paid wages lower than the average, the measured statistic, “average hourly wage,” remained stagnant over the years—even while the real wages of actual flesh-and-blood workers employed in any given year rose over time as they gained more experience and skills. We also have much lower costs for modern basics, everyday food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

    One underappreciated result of the dramatic fall in the cost (and rise in the quality) of modern “basics” is that, while income inequality might be rising when measured in dollars, it is falling when reckoned in what’s most important—our ability to consume. Today, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past.

    Even though the inflation-adjusted hourly wage hasn’t changed much in 50 years, it is unlikely that an average American would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today’s cornucopia of modern electronic goods—for the same real wages but with much lower fringe benefits in the 1950s or 1970s, along with those era’s higher prices, more limited selection, and inferior products.

    Despite assertions by progressives who complain about stagnant wages, inequality and the (always) disappearing middle class, middle-class Americans have more buying power than ever before. They live longer lives and have much greater access to the services and consumer products bought by billionaires.

    I have to admit I took this all from an article by Mr. Boudreaux and Perry. The first is professor of economics at George Mason University and chair for the study of free market capitalism at the Mercatus Center. Mr. Perry is a professor of economics at the University of Michigan-Flint and a resident scholar at the American Enterprise Institute. Article from Wall Street Journal from January of 2013.

    Please don’t shoot me for bring this up. I myself had wondered how the flat wage stat from 1964 could be the used when all the middle class people I know have not changed their lifestyle thru the decades. Have they all gone into hock? Using my family as a simple example, my wages went up faster in my 30’s and 40’s but stayed flat against CPI index for the next 20. I have no debt, my home is worth 5 times what I paid for it, and I have a small pension while my wife has a teachers pension. We both saved in our 401/403 and just retired.

    Pardon my long winded blog but I guess you are used to it by now. I have always railed against the disparity of classes. I expected the divide to cause an economic disaster decades ago. I always assumed it was ever increased debt that allowed the middle class to stay afloat. I question that now considering we had a huge 5 plus year contraction. Quality of life has improved and so has longevity. There is never an easy answer. If their was than Ricks stats alone would indicate there is no middle class today. I see young kids going out and spending on restaurants and drinks. Have the iPhone, and all the other high tech devices. The restaurants here are not cheap and neither are the drinks. How the can afford to live in my neighborhood is also a mystery. perhaps Mom and Dad are helping out.

    Summary: While I agree the middle class is getting squeezed, I wonder just how slowly we are drifting down. How else can you explain all the middle class segments of the economy that are doing just fine. If the government data is to be believed the two segments that have surged these last few years in borrowing is autos and student loans. Everything else is lower. Sorry but I just don’t see the demise of the middle class just yet.

    This is one position I can’t truly grasp. On the fence when trying to decide if the current debt load has already caused a rift with the middle class. What I observe in my world, it just isn’t there yet.

    • REVOLTED VLAD July 14, 2014, 10:13 am

      blah de blah blah blah.

      there is only one thing about you, gary, I wonder about.
      why are you always mentioning ‘scratching your head’?
      do you suffer from severe psoriasis, or ‘dandruff,’ as you call it?

    • BDTR July 14, 2014, 3:00 pm

      Think boiling frogs, Gary.

      Managing cognitive dissonance has become high art of control. It’s certainly not absolute, just refined systematically through applied social science, political encroachment of freedom and privacy, and advanced, mathematically directed technology.

      It isn’t that we’re not living an unsustainable lie. That even as you cite within your own relatively comfortable reality there’s very apparent and growing numbers of camouflaged victims of the same system that you still manage to successfully game. Driving the BMW down to apply for food stamps is no oddity. Mom and dad’s basement?

      Nor is the manufacture of weapons of war and suppression as our economic bulwark,.. ‘lotta’ good money to be made in supplying the army with tools of its trade’. Despite vain hopes of maintaining those tools to foreign applications, the strategic deployment of them domestically through DHS programs portends something much less than rosy expectations from on high. Still good jobs at DHS.

      It’s seductive co-option that erodes everything traditionally considered moral, patriotic and equitable at reduced rate of boil that keeps the guessing game going. But playing the game of diminishing returns has but one end, we all know what that is. It’s just a different dimension of taxation, which we also know is just as inevitable as that other creeping thing we all like to avoid.

      Avoid, that is, until it’s simply unavoidable.

      Btw, happy Bastille Day.

    • Rick Ackerman July 14, 2014, 6:39 pm

      You’ve focused on the bread-and-circuses aspect of a supposedly improved middle-class life, Gary. Here are some far more important things that have changed for the (much) worse:

      1. In the 1950s and 60s, single-earner households could afford life’s amenities without going into debt. Nowadays, even couples with two professional incomes must go deeply into hock, often borrowing against the inflated value of their homes, just to put their kids through college.

      2. The kids, meanwhile, graduate $50k or more in-the-hole, facing a dismal job market wholly unsuited to their skills, such as they are.

      3. Doctors made house calls, health insurance was cheap, and a stay in the hospital was not a greased pathway to bankruptcy.

      4. Our parents retired with plenty of money in the bank and their homes paid-for. By and large, the Baby Boomers will not get to retire at all.

      The most socially significant, pernicious and destructive aspect of our steep decline is the rise of the working wife/mother. Feminists will claim the trend was driven by the desire of women for financial independence and self-sufficiency, but that is incorrect; it is financial necessity, all-too-often dire, that has driven the change.

      • Gary leibowitz July 14, 2014, 10:43 pm

        Agree to every point. The long standing trend is clear. 2 wage earners per family is now ecpxted. My point being that it’s a very slow degradation over decades. You have to include the middle class when discussing any economic improvement. Impossible to declare the last 5 years of earnings growth without the help of the middle. What will be the point of debt saturation? Now that credit is looser and people more willing to borrow that trend should show up soon. Auto delinquencies are still low. Student loans are predominantly by Fed. I suspect the government will reduce the debt burden with new rules and legislation. It is on the political radar. The death of the middle class is a slow process. I did not see the mortgage debacle and government response causing its demise just yet. Perhaps a small sampling of personal experiences could give us a better idea on that score.

      • John Jay July 14, 2014, 10:58 pm

        Rick,
        And do not forget sky high property taxes to pay for public schools so wretched that those who can afford it send their children to private schools.
        Those citizens are in effect forced to pay twice to educate their children, since you can’t opt out of paying property taxes if you do not use the public school system.
        And home schooling might lead to a CPS investigation of your deviant, anti-social practices!

      • Jackson July 15, 2014, 4:54 am

        The 1950s and 60s, were great, depending on who you ask.

        &&&&&&

        Like, anyone over 40?
        RA

      • ANARCHIC VLAD July 16, 2014, 2:41 am

        the 50’s and 60’s were just more
        honest,
        and that is all.
        not that they were not corrupt, in
        their own, simpler way.
        for they were.
        however, today, everything in ussa, is pure hypocrisy,
        of decades of deeply built,
        skin deep, ever growing, cynicism.

        so, if you don’t ‘got it,’
        you ain’t with the ‘in-crowd’,
        and then, you don’t get in the door.
        yawn. ‘dejavu all over again’, as yogi said.

        but,
        even that, trust me, will surely change.
        you betcha. 100% VLAD guaranteed.
        and I can’t wait.
        to see it occur. before I croak.
        boom. all of you ussa turkeys–g o n e.
        and deservedly so.
        haha.
        damn. I loath ‘amerikains’.
        can’t wait for you all, to be–
        extinct.
        ha.
        for you are surely the…

        &&&&&

        Fewer, more thoughtful posts, please. Nothing like coming home from an evening out and finding nine — count ’em, nine! — posts from you that need to be edited/censored/deleted. I’ll hold you to two posts a day for a while, so make them count. RA

    • Aint No July 14, 2014, 11:34 pm

      Gary,

      generally don’t comment on this blog but I do read it on occasion and have noted with some appreciation your contrarian contributions. Nevertheless, here you are wrong and Rick is right.

      The middle class has been systematically decimated since 1981 and the 70’s weren’t that great either. If you compare the present to say the 60’s by some some straight up measure of consumption, you perhaps have a point, but consumption of course is only one measure of economic and financial well being.

      Similarly, the quality of goods and services being produced by this economy has suffered greatly since the late 60’s, outside of the obvious technological innovations. When was the last time you bought something that lasted over five years? It used to be commonplace to buy all sorts of things that would last twenty.

      The only thing that kept the middle class afloat from 1981 to 2oo8 was the explosion of consumer credit (and later, the housing bubble). And the rebooting of the consumer credit machine is the only thing keeping its remnant afloat today.

      As for the kids in the coffee shops and bars, well yeah, that’s what kids do. They also live five and six to an apartment in what were until very recently ghettos in Brooklyn and Oakland. . .
      . . .That is, if they’re not working in Finance or Tech, or if their parents aren’t paying.

      • gary leibowitz July 15, 2014, 3:33 am

        I have stated pretty much the same thing except where your conclusions draw you.

        The reason things don’t last so long is cultural, not because products fail to work. When I started buying my own car leasing was only for businesses. People crave the latest and greatest. Not so in my generation, but to be fair we didn’t have the turnover of new products like they do now. Corporations have learnt that if you stagger the changes over time they will have multiple expansion to the bottom line. Credit and easy terms also helped.

        We now have everything the rich have to a degree. This is a plastic society in every way. We only want easy credit for disposable items. I keep my car an average of 8 years with no mechanical problems to date. I stuck to a flip phone way after it was uncool. My TV averages 6 to 8 years. It’s not that things break or are made bad, it’s that people always want the newest thing. Advertising Agencies must be having a field day compared to the 60’s.

        I absolutely agree that credit has kept the middle class in a fairly comfortable position. Extended credit with longer terms have also helped. I blame the early 80’s when credit cards took off. The question still remains as to the degree of slippage. I maintain that the crash had a perverse way of reigning in some of those excesses. Looks like we are now about to revamp all the bad habits. If that happens I can assure you that this market will go much higher than anyone expects, and longer. It will also seal our fate.

        As for real estate in the north east, it has come all the way back. rentals are perhaps rising faster than home prices but both are surging again. I can now get 600K for my 700 square apartment, and at the pre-crash peak it was around 550K. In Brooklyn. The pockets of weakness before the crash have been hit the hardest and are slow to come back.

        All I am saying is that the slanted reports on just how bad things are couldn’t possible be correct after 5 years. All reports that I see have an above 80 percent full time employment figure. Pre-crash it was 90 percent. There is no question that the middle keeps getting squeezed. When do they hit their breaking point? The recent trend has improved in almost every aspect so its not likely that an improvement from before would cause it. An outside force perhaps? Another major debt vehicle collapse? The Libor Market is a good indication of fear on the street. It is unfortunate that we are stuck with unsupportable debt but that hasn’t derailed the train. It’s only when the system gets tested and fails that we see a stampede event. My suggestion is that as long as the Fed can control rates the game continues. When creditors blink and fear sets in it will be all over. No answer on where to look for this event. I do know that individuals, if clear headed, and smart enough, can understand when that stress comes and step aside. Call me naïve but that’s been my view for a very long time.

      • Andy Gutterman July 15, 2014, 5:30 am

        We bought a used 2005 Dodge Grand Caravan SXT in 2009. Still have it and it runs just fine. Cars are designed to last far longer than 10 years, why do you think banks can make 7 or even 10 year loans for new car purchases?

        Lots of consumer goods last a long time. Much longer than they did when I was a kid in the 50’s or 60’s.

        Andy

        &&&&&

        Thank the Japanese for pressuring the Germans into engineering a car that didn’t need major service every 8000 miles. I speak from experience, having owned a 1969 BMW. RA

      • ANARCHIC VLAD July 16, 2014, 2:54 am

        amerikain automobiles built in 50’s and 60’s, ran
        f o r e v e r.
        and then, boom, 70’s mega-inflationary mentality,
        70’s autos, started falling apart, right at their warranty time.
        is anyone surprised? for it was all by design.

        same with marriages, wives at home, typical family of four, etc.
        the ussa 70’s crushed them all. purposefully. done by the 1% ubermasters.
        due to those damn newly printed ussa paper fiats, designed to kill world.

        the ussa has killed the modern world. so there is no more blood to suck, yankees.
        so now you get, your long awaited bigtime dues.
        payback.
        and it’s building, like a major tidal wave, at you all. worse than ‘lucifer’s hammer.’

      • Oregon July 16, 2014, 5:57 pm

        Vlad, no wonder your memory is so good… Repeat the same crap every day and how could you forget?

  • Cossack July 14, 2014, 2:48 am

    If you follow Martin Armstrong’s argument you can’t take US figures in isolation. You have to take into account global capital flow. If that premise is correct you’d have to check how much overseas money is flowing into US markets, and my suspicion would be that it’s a lot.

    &&&&&&

    True enough, Cossack. However, it is only misplaced confidence that makes those global capital flows seem to exist. As such, they could — and probably will — vanish literally overnight. RA

  • Wayne July 14, 2014, 1:56 am

    “The economy has been creating more than 250,000 new McJobs jobs per month lately, supposedly recouping all of the positions lost in the 2007-08 crash.” – Rick I know you already are aware of this but I just want to point this out to anyone swayed by the politburos easy bake oven numbers. The truth is that “In the household survey, full-time jobs fell by 523,000, while part-time jobs rose by 799,000.”

    “In all but two months since December 2008, more unemployed have dropped out than found jobs,” writes Izzo.”

    Source: http://www.cnbc.com/id/101813082

    The truth is job quality has vastly deteriorated. They list the qualifiers for a good job as: one that pays at least $37,000 annually, has both employer-sponsored healthcare and retirement benefits.

    The share of the labor force that has a good job is only 24%! 40% of the labor force makes $10 or less!

    I live in Chiraq and know for a fact that we are in an economic depression. The misery, dilapidation, and collapse of commerce and business are widespread and prevalent in America’s third largest metropolitan area. I was driving through Golf Rd today and it is an economic wasteland with total pockets of commercial dead zones. Very eerie, like a post apocalyptic zombie film.

    “The Romans create a wilderness and calls it peace.” – Tacitus

    Later we can say, “The FED creates an economic desert and calls it prosperity.”

    P.S. You can have record earnings and corporate profits for major multinationals and have an economic depression and collapse of the middle class. Proof? You are looking at it right now.

    For how long is the real question.

    • REVOLTED VLAD July 14, 2014, 10:05 am

      citing extinct ancient roman quotes are good analogies, to current ussa times.
      personally, I prefer fellini’s visuals, ‘satyricon’ or ‘roma’, as direct hit to the jugular.

  • Troll July 14, 2014, 1:05 am
    • ANARCHIC VLAD July 16, 2014, 3:46 am

      did zerohedge really really lie and hurt you, troll, 3 years ago?
      please do tell us all about it. we all want to weep about it. seriously.
      hahaha.

      • Troll July 18, 2014, 5:36 am

        Zerohedge didn’t hurt me , Vlad.

        But they unequivocally stated the “market collapse has OFFICIALLY begun,” like they are some elder statesman.

        Officially?

        What does that mean?

        How many times do they have to get it wrong before people here come to the conclusion they don’t know much more than anyone else where timing the market is concerned?

        Of course, there will be the one time they get it right, and all the mistakes they’ve made in the past will be overlooked and we can once again bow down and pray at the feet Zerohedge.

      • dk July 18, 2014, 7:21 pm

        Oh, so ZeroHedge DIDN’T hurt you? They didn’t suck it out of you with their supposed schemes? All of a sudden your tune changes.

        Give us a break.

        When you can take responsibility for your own actions, you’ll be that much better. Unfortunately that is contrary for your commie/lib mentality.

        How fitting it is that you suggest they are in cahoots with some bank, this or that, to skirt their reader base while all of the so-called “conspiracy theories” involving the government and/or the banks should be ignored or called “insane,” regardless of the evidence proving otherwise.
        Perhaps Seeking Alpha and other financial blogs/outlets should be investigated for being so ruthless and calibrated, it’d be great to see you prove linear connection, but you’ll argue that that’s exactly how it’s designed, so no connection can be made.

        Just stop.

        People were telling Ron Paul for 40 years he was wrong, until it was realized that all along he was right, as history tells the tale. He unequivocally said that. I guess he was wrong all along and didn’t actually know what he was talking about. Similar to Ross Perot and many others.

        How many people EVER have been great market timers? Not too many. In the large picture, many have had it right, even common sense is suggestive of it, unequivocally.
        So, lets crucify ZH over a claim they made years ago that has instead turned out to take much longer bleed than anyone has expected even though the mountain of evidence suggests they were right.

        So, please, we get it.

        Oh and regarding your last comments to me, I obviously decided against leaving because I concluded that I’m not going to let some whiney twit ruin it for me.
        Instead. I enjoy coming on here and watching your comments repeatedly get stuffed back into the hole from which they came, and it’s not your mouth.

      • Gary leibowitz July 18, 2014, 8:02 pm

        What zerohedge and the like get wrong is the very extreme argument that there is a conspiracy to destroy our way of life. Nothing more than human frailties. The shift to corporate control has been slow but steady. Politicians try to justify this shift with social programs and spending from an unlimited source. Just like all the other extreme cycles we eventually revert back. Unfortunate we are in the era of climactic change.

      • dk July 18, 2014, 8:50 pm

        “What zerohedge and the like get wrong is the very extreme argument that there is a conspiracy to destroy our way of life.”

        What purposes would you ascribe to the Federal Reserve Act (which, again, is not Federal in any way, shape, or form)?
        Do you see another fundamental reason other than depleting others’ lives to enrich those of a select few?
        You do realize it still exists? You do realize the power they command and the influence and direct ties they have to the major banks of the world?

        We KNOW you watch the markets react to every little word they utter… amazing isn’t it?

        Did you know “gullible” isn’t in the dictionary?
        Are you not a proponent of the 99%?

    • mario July 17, 2014, 3:01 am

      I’m with Troll on this….I appreciate alternative sources that dig deeper but ZH posts get it very wrong way too often, replete with the classic rhetorical distortions and deletions a creative writer with an agenda or lack of true expertise on a subject can throw at a topic…

      Cheers, Mario

      • Jason S July 19, 2014, 1:34 am

        The reality is that the markets are not (have never been, never will be) rational. ZH (like me) never envisioned that the federal governments of the world would be as irresponsible with tax payer money to bail out corporate and government malfeasance.

        Most people, like children, will continue to raid the cookie jar as long as those in charge turn a blind eye. The longer this goes on, the more bold they become. Also, the worse the tantrum will be when they are finally made to stop the cookie theft (generally enacted when the theft becomes too egregious.)

      • Troll July 19, 2014, 5:43 am

        Good for you, dk, you have finally come to the conclusion that debate is a good, and you aren’t going to be a little, runaway crybaby when others dispute your “worldly” point of view.