Monday , 25 September 2017


The Dow 30: How Relevant Is Its Height to Economic Health of U.S.?

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Let’s run down the line and see what has happened to…our economy since the Investing financial marketsDow last ran above 14K and then ask ourselves the following questions:

  1. Do we actually have a time machine and have reset to 2007?
  2. Have we, instead, entered the uncharted territory of unsustainable, runaway trends the likes of which have never been observed in recorded history?
  3. How relevant is the Dow Industrials Index in all of this?

 

So writes Andy Sutton (http://www.sutton-associates.net) in edited excerpts from his original article* entitled My Two Cents – “Is It Really 2007 Again?”

 

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

 

Sutton goes on to say in further edited excerpts:

 

Employment – and the Lack Thereof

 

We all know the headline unemployment rate is a farce….What is far more instructive in analyzing the employment situation is a look at the workforce itself and comparing it to the population.

  • In November of 2007, the Labor Force Participation Rate or LFPR (according to BLS) was 66.0%. In February 2013 it is 63.5%
  • In November 2007 the workforce was 153.835 million. In February 2013 it is 155.654 million.
  • In November 2007 the number of people ‘at work’ full-time was 146.595 million compared to 143.222 million as of February 2013. Despite the fact that the workforce has grown by 1.819 million people due to population factors, there are actually 3.373 million LESS people working full-time now than were doing so in 2007.

So much for the end of the ‘Great Recession’; at least from an employment perspective.

The Dow Has Recovered – Employment Has Not!

emp_level_03082013

 

The Dow Flies While the LFPR Dies!

Even more drastic than the failure of the full-time labor market to recover is the steady drop in the LFPR. Graphically, it is much more telling than the numbers above:

Sutton 2

 

 

The above should really be no surprise given the very mainstream newsbytes about more and more Americans receiving government checks. That is exactly the type of situation that statist, socialist-leaning regimes always aim for. Before anyone gets the bright idea of accusing me of being partisan or whatever, we’ll even take this trend back to the last big Dow top around the turn of the century:

 

Sutton 3

 

…Now to the utterly disturbing. The number of multiple job holders rose by a record 340,000 in February [see chart below]. These are people who are working more than one job to make ends meet. The number of full-time jobs dropped by 77,000 and the number of part-time workers rose by 102,000. One can easily see how this becomes a quantity vs. quality issue. This is clearly another case where there is much more to the story than will be reported by the lapdog media. Once again, they are complicit in the growing national ignorance.

Sutton 4

 

 

One last thing of note just to show how little sense there is to anything. The headline unemployment number is beginning to get into the ballpark where the not-so-USFed will consider raising interest rates (the ‘target’ is 6.5%). Anytime someone even whispers about the end of QE or an increase in interest rates, the markets sell off big, yet the Dow opened up 50+ points this morning at another all-time high.

 

Debt: The Millstone Around the Neck of America – Young & Old

 

Must we really talk about debt AGAIN? Yes, we must. Why? Because it is killing us. I’m not going to focus this time on the national debt; everyone with a pulse already knows what is going on there. I will add that we shouldn’t expect it to get better anytime soon either. The government went another $253 Billion with a ‘B’ in hock during February alone….

 

However, too often we are short-sighted. We have to look out into the future and see what might be a trend there if we’re going to make any type of serious macroeconomic forecast. So this time around we’ll look at the younger folks and see where they’re at in terms of debt loads. If this doesn’t sober you, nothing will.

 

Many are accurate in portraying my own generation and the one before it as irresponsible for passing on a tremendous debt load to our kids and grandkids and they’d be correct. We are guilty as charged. However, we are doubly guilty and here’s why. At the same time we’re sticking it to them with unfunded liabilities for Social Security and Medicare, we’re also encouraging them to rack up their own debt and to do it at a young age.

 

College education in America has become something of a birthright. I’m going to tell you right here that if you plan on majoring in anything that has to do with the liberal arts, then you might as well flush your money down the toilet – and if you send your kid to college to ‘find themselves’, then you need to have your head examined. This is not the 1980s anymore. Unless you’ve got a pretty good idea of what you want to do when you get out and are reasonably sure of a job (ie: you’d better do your homework), then don’t bother. And this comes from someone with three college degrees. The big difference is they were all paid for within a year of finishing school. I could never pull a stunt like that today, and I wouldn’t even try. Let’s take a look at student loan debt:

 

Sutton 5

 

The very modest retrenchment that took place after the 2008 crisis showed a decrease in all kinds of debt across the board – except for student loans. Our kids never got the memo that the world had changed. Student loan debt nearly DOUBLED from the end of 2007 to present. This is the biggest problem that nobody is talking about. These are our future consumers and they’re coming out of the gates gimpy with broken wheels due, for the most part, to crippling debt and rotten job prospects.

 

The adults aren’t doing much better as the data below shows a trend developing back into credit card debt – the most expensive debt of all. Rates are ONLY around 13.5% on average. I guess 27 times the Fed Funds Rate is a good deal. What would these banks ever charge if the FFR went back to a modest 5%?

 

Sutton 6

 

 

Purchasing Power – Like Sand Through Our Fingers

 

It probably won’t take much convincing for most people to understand the drop in the purchasing power of their paychecks. A quick trip to the grocery store is proof enough but it isn’t just that. The ‘wealth effect’ of a bump in housing prices in select areas also puts a strain on affordability. The powers-that-be have applied all types of soothing ointments to grease the housing skids….Housing is the great Humpty Dumpty.

 

When it comes to tracking price inflation at the consumer level, forget the BLS. They have been understating price inflation for decades. Why? Because it allows the government to stick it to recipients of transfer payments like those folks on Social Security. To all the retirees out there: remember how you got no raises in your Social Security checks all those years in the mid-2000s because the government said there was ‘no inflation’? Check out this chart:

 

Sutton 7

 

 

The red line is the BLS number. The blue line is an alternate derivation produced by economist John Williams using BLS’ retired methodologies. His derivation of CPU-U from 2007-present averages close to 10% per year where the BLS number averages around 3%. Now you can figure out for yourself which number more accurately represents your personal situation. Perhaps you’re somewhere in the middle. What I can assure you is that there are many more folks closer to that blue line than the red line.

 

The big divergence started in 1993. Ironically, this is when the unemployment methodologies were also changed and around the same time that consumer debt absolutely exploded. These guys at BLS knew what was coming and jerry-rigged the methodologies to tone down joblessness, underemployment, and price inflation. So now how do you feel about the Dow regaining its 2007 level? Even if you regained every dollar from that last high, those dollars now buy considerably less than they did in 2007. How’s that wealth effect working now?

 

Conclusion

 

As I close this essay I have to ask, “Do we really have a time machine and have reset to 2007 or have we in fact entered the uncharted territory of unsustainable, runaway trends the likes of which have never been observed in recorded history? Also, just how relevant is the Dow Industrials Index in all of this?”

 

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

 

*http://www.sutton-associates.net/issues/mtc_2013/mtc_03082013.php (Copyright 2007 – Sutton & Associates, LLC – All Rights Reserved; Please feel free to distribute, copy or otherwise disseminate this information; The Centsible Investor – Subscriber’s Page (Username/Password emailed at time of subscription)

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