It is 2009; the Fed rides to the rescue saving the banks, housing, and our beloved stock market the old-fashioned way with nearly free money. The goal was to have corporations hire folks and then that demand for workers would produce wage growth. That wage growth, as we know from experience, would ignite inflation that in turn would allow for a tightening of rates to get us back to normal.
It is now 2015 and trillions of dollars of debt later there is no inflation and wages are dormant.
I used to suggest that technology will be the death of us. Maybe it is not a joke. If it is, it’s not funny. The humongous change in technology that has forever changed the global labor market is, and has been, changing things for the worse. This change has been responsible for the abnormal recovery coming out of the Great Recession.
The Fed kept talking as if we were recovering from any old recession while ignoring or not admitting that something substantive, and negative, was at work in the workforce.
Human beings of all ilks have a more than passing interest in the implications of these changes. Economies in the past have grown as a result of demand spurring labor-intensive manufacturing that generated income that allowed greater consumption.
Technology has lowered demand for labor; less labor less income. Less income less demand. Less demand less growth. Less growth lower profits. Lower profits lower stock market.
The days when the so-called Bernanke put, now the Yellen put, would fire up the buy-the-dip-vigilantes and a rally would ensue are, I think, behind us for now; at least until the next QE starts.
The Fed’s mantra included observations that issues were of a transitory nature and inflation was bubbling just below the surface. However, what was bubbling below the surface was not inflation, it was the noted behavior in the stock market as it made new highs in 2015. Leadership stocks were not participating. In fact, they were in reverse.
Mid-year of 2015 the stock market had to contend with Greece’s collection of kicked cans now piled up at the end of the road. More recently, we discovered that Chinese numbers just don’t add up and not only that, we cannot get a grip on what they are.
Should we have been surprised at August’s flash crash? Moreover, if you thought August was ugly, there are more months to follow according to my calendar.
During this time, the buy-the-dip-vigilantes were active, sopping up fallen prices like new sponges just as sure as the bond vigilantes were doing their intimidating thing in the late ‘90s.
Along comes Janet Yellen and her FOMC posse on Sept. 17, 2015. For the umpteenth time, the market media trumpeted this meeting as “the most significant” since the invention of money. If the FOMC does not raise rates, the rocket fuel of the past for a market pop, does it indicate economic weakness? Yes. Yes, it does.
Well, the boys in the band, the FOMC, with aging lead singer Janet Yellen flinched by not raising rates… again.
The market promptly went south in a big way. For one thing, we were right back where we were hours earlier, i.e., will they, won’t they? Major banks like JPM and GS are looking beyond October.
Has the global growth engine gone into reverse? Lack of growth, loss of jobs has started anew. WFC, HP, Qualcomm, Deutsche Bank, Johnson Controls, cut a combined 57,482 workers. Now WFC’s 182 workers doesn’t seem like much until you note that it’s in their North Carolina mortgage department. WFC is the nation’s largest mortgage banker. What do they see? Less income to spend, less demand, less growth, less profit, equals a lower market.
Technology does not eat, doesn’t spend money, and doesn’t require health care; it just sits there waiting to be utilized.
Moreover, what do corporations do with the money they save? They’ve been buying back their stock.
Meanwhile, the unemployed carbon-based human forms eat, have mortgages, rents, health care bills, among other life needs. They are going back to where they were in 2009.
Increasingly, technology is replacing humans at a time when humans are replacing themselves faster than death can absorb the new population growth.
We are all grown-ups here, does anyone think this is sustainable?
I believe this market will continue to fade rallies and continue to make new lows. Arguably, maybe at the 1870 level on the SPX will usher in QE4. Oh, yes, they can, and oh, yes, up we would go.
The argument may not be so much when will the Fed raise rates? Maybe the question is, can they?