Submitted by William Bonner, Chairman – Bonner & Partners
Like Asking Yourself for a Date
NORMANDY, France – “The Decline and Fall of America’s Working Class” is a subject that draws much interest.
Semi-skilled labor isn’t what it used to be. From our own simple calculation, last week, it appeared that in order to afford a typical new house and new car, a working stiff today would have to put in about twice as much time on the job as he would have 40 years ago.
“How come?” is the question most people ask. But we’ll come back with a different question in just a moment. First, a look at the markets: Investors decided to leave their worries on the doorstep on Monday. They crossed to the sunny side of the street, with the Dow up 237 points.
Who needs men? It’s a sheconomy now! Incidentally, the “home of the brave” has also turned into a nation of wimps, in which young men need to call the police for help and require “psychological counseling” upon discovering a mouse living in their apartment. But that is probably just a coincidence.
Image credit: iconspro
On Monday, traders woke up and said to themselves: what could be a better reason for buying stocks than a bloody terror attack? That Keynesian genius Professor Roubini already told us it will be good for the euro zone economy! War, death and destruction are the fathers of all things after all! – click to enlarge.
How much of that buying comes from serious investors, carefully analyzing the real value of the companies they buy? Probably not much.
A report at Zero Hedge tells us that since 2010, U.S. corporations have added, net, more than $4 trillion in debt. What did they do with all that money? They used almost all of it to buy their own stock.
Originally presented by Societe Generale’s famous “ice age” bear Albert Edwards, John Hussman posted this chart in his always refreshing weekly bubble update. Corporate mandarins have decided to make their stockholders feel good in the short term, while by sheer coincidence giving their own stock option plans a little “coup de whiskey” as well. As usual, they are doing so by endangering the equity of shareholders in the long term, in that they are loading their companies with debt to the gills, in order to fund massive stock buybacks just when stocks are trading within 5% of their most overvalued levels in history. A genius plan if ever there was one. Gonna work this time, because this time it’s different! – click to enlarge.
Prices are set at the margin. So, even a little bit of extra buying can have a big effect on stock prices. Four trillion dollars’ worth of extra buying – coming from the corporations themselves – could account for 100%, or more, of all stock market gains over the last four years.
Whoa. What kind of crazy finance is this? In 2011, the S&P traded in the 1,200 range. Now, it is over 2,000, which represents a capital gain of about $6 or $7 trillion. If our math is correct, every dollar of that asset price increase was purchased at a cost of about 70 cents of additional debt. Is that a good deal?
So it appears… At least until the stock market goes down. Then, the balance sheet begins to sag on the left, where the debits are, and lightens up on the right, where the credits are.
Stock prices go down as well as up. But debt remains just where it was. Borrowing to buy your own assets, like asking yourself for a date, is rarely very satisfying.
In the case of U.S. stocks, the next phase will likely be a transfer of wealth from the stockholders to the bondholders. That is, the stockholders will own less of the corporation; the bondholders will own more. The value of the equity will go down; the value of the debt – relatively… and assuming the corporations remain solvent – will go up.
When Women Have No Use for Men
We have been on this story for years. Mostly, it is a matter of curiosity. How could so many people actually get poorer during what should have been the most fabulously productive period in history?
And yet the figures – subject to much misinterpretation – and the anecdotal evidence coming from our own readers point in the same direction: The typical American man has less real, disposable income today than he had 40 or even 50 years ago. Surely, he must be feeling a little blue. Professor Noah Smith:
“One big piece of news in the past couple of weeks has been the release of a new paper by recent economics Nobel winner Angus Deaton and his co-author Anne Case. The paper highlights a very disturbing trend – death rates are increasing for white people in America, especially for working-class middle-aged whites. The increase looks like it has been going on since the late 1990s.
… for white Americans with no college education, deaths have soared…”
Other groups of men – Hispanic and black – live longer. Why would life expectancy be going in the opposite direction for whites? The proximate causes, according to the Deaton-Case paper, were drugs, alcohol, and suicide. But what’s behind it… why?
Main causes of death of the underprivileged and economically marginalized group known as the white patriarchy: poisoning, suicide, liver disease. These oppressors have it so good, that their bad conscience commands them to suicide themselves – click to enlarge.
In 1965, Daniel Patrick Moynihan’s famous report on the “Negro Family” warned that black families were being destroyed. Out-of-wedlock babies, family breakups, poverty, drugs, violence, unemployment, prison – blacks were actually falling further and further behind whites, he noted.
But now it is poor or “middle-class” whites who are being left for dead. They can’t get decent jobs. Their marriages are breaking up. Their children are raised by single parents (the rate is about the same for whites today as it was for blacks in the ’60s). They drink too much. They take drugs. They’ve given up looking for work. They kill themselves at a startling rate. Why? Noah Smith guesses:
“The uneducated class became a floating low-skilled labor force, which decreased the marriageability of white working-class men. That impaired family formation. A couple of decades later, the lack of family support started to take a big bite out of the emotional health of working-class whites, causing them to turn to alcohol, drugs and suicide once they reached middle age.”
We’ll take our own guess: As the “breadwinner” jobs disappeared, white men lost their sense of purpose and place. Women often find it easier to get work and often earn more. Men could no longer “bring home the bacon”; women had less use for them.
When women have no use for men, men soon get up to mischief.
Fear the mouse! Terrorist rodent striking fear into the hearts of young American males. Do not underestimate this treacherous bio-weapon! When today’s young men become middle-aged males, a failure to come to terms with early mouse trauma could well contribute to depression and suicidal tendencies.
Photo via desktopbackgroundsi.net
Charts by: StockCharts, Société Générale / John Hussman, Washington Post / National Academy of Sciences