A major reason why new home building has not substantially recovered is because outside of the upper classes real wages have been stagnant since the end of Great Recession. Worse, despite a rising stock market, a majority of Americans own no stock. Lastly, among households headed by individuals under 40, net worth is still, on average, lower than it was before the housing bust. We desperately need wage growth.
Tag Archives: stock market
Arbitrage
One reason the stock market is doing so well is due to stock buybacks. Despite high share prices, for dividend-paying firms with top-notch credit ratings, interest rates have never been lower. These firms are borrowing long-term at 2% to buy back stock with, perhaps, a 4% dividend. And since interest is tax deductible, the borrowing costs are even lower. Amazingly and regrettably, these firms see nothing better to invest in!
Wealth Matters
The stock market has fallen by about 10% in the last two weeks, destroying about $2 trillion of wealth. If the market does not rebound quickly this will cut GDP by about $70 billion; half a percent. Here’s why. Suppose you just lost $10,000 due to the market decline, will you cut your annual spending by $350 as a result? Probably. Welcome to the wealth effect; it matters.
Aggregate Demand MIA
Major averages have hit post-recovery highs aided and abetted by fattening margins provide by massive excess labor and the decline in unit labor costs that go along with that as well as the torque from a vibrant overseas economy and the currency translation effects of the ever weakening dollar. But, it really has nothing to do with the shape of domestic demand which can best be described as lackluster.
The stock market is Too High
Measures of investor sentiment are irrational―the bear share in the latest Investor Intelligence poll is down to 19.1% from 20.5% last week. The bull camp is all the way up to 57.3% from 54.5%. Back on Labor Day, the Investor Intelligence survey flashed 29.4% bulls and 37.7% bears. Now, with 20/20 hindsight, we know what represents a nice buying opportunity and what doesn’t.