*** 4-Mar-17 World View -- Champagne corks pop as a 'Trump rally' sends Wall Street stocks parabolic
This morning's key headlines from
GenerationalDynamics.com
- Champagne corks pop as a 'Trump rally' sends Wall Street stocks parabolic
- End of debt ceiling suspension on March 15 signals new Washington fiscal crisis
- The velocity of money keeps plummeting, indicating no economic growth
****
**** Champagne corks pop as a 'Trump rally' sends Wall Street stocks parabolic
****
S&P 500 Price/Earnings ratio at 24.90 on March 3, indicating a huge and growing stock market bubble (WSJ)
The Dow Jones Industrial Average has exploded upward some 2,000 points
since the November 8 election, leading analysts to refer to it as "the
Trump rally." The increase was infectious, and stock markets in
Europe and Asia also surged. President Donald Trump tweeted on
Thursday, "Since November 8th, Election Day, the stock market has
posted $3.2 trillion in gains." It's believed that investors are
reacting to Trump's promises to promote job growth with huge
infrastructure spending and deep tax cuts to individuals and
corporations.
When the word "parabolic" is applied to a stock market index (alluding
to the mathematical curve called a "parabola"), it means that the
stock market as been rising so rapidly, it appears to be the prelude
to an imminent panic. Investors who have been popping their champagne
corks in ebullient celebration out of all the money they believe
they're making in the stock market are not using the word "parabolic,"
but that's what's going on nonetheless.
According to Friday's
Wall Street Journal, the S&P 500 Price/Earnings index (stock valuations index)
on Friday morning (Mar 3) was at an astronomically high 24.90. This
is far above the historical average of 14, indicating that the stock
market bubble is still growing, and could burst at any time.
Generational Dynamics predicts that the P/E ratio will fall to the 5-6
range or lower, which is where it was as recently as 1982, resulting
in a Dow Jones Industrial Average of 3000 or lower.
A stock market panic and crash is coming with 100% certainty. To this
day, we still don't know what triggered the stock market panic in
October 1929, and why it happened at that time rather than a little
earlier or later, so we don't know what will trigger the approaching
stock market panic and crash, though we know with certainty that it's
coming.
David Stockman was President Ronald Reagan's budget director. He
criticized some of the Reagan administration's budget proposals, and
later said that Reagan has "taken him to the woodshed." That phrase
has stuck with him in the 30+ years that have passed, and today he's
considered to be a virtuoso budget authority. Like myself, he's been
writing about the stock market bubble for several years.
In an interview last week, Stockman was asked whether the "Trump
rally" can keep going. He replied:
> [indent]
<QUOTE>"I don’t think there is a snowball’s chance in the hot
> place that’s going to happen. This is delusional. This is the
> greatest suckers’ rally of all time. It is based on pure hopium
> and not any analysis at all as what it will take to push through a
> big tax cut. Donald Trump is in a trap. Today the debt is $20
> trillion. It’s 106% of GDP. ... Trump is inheriting a built-in
> deficit of $10 trillion over the next decade under current
> policies that are built in. Yet, he wants more defense spending,
> not less. He wants drastic sweeping tax cuts for corporations and
> individuals. He wants to spend more money on border security and
> law enforcement. He’s going to do more for the veterans. He
> wants this big trillion dollar infrastructure program. You put
> all that together and it’s madness. It doesn’t even begin to add
> up, and it won’t happen when you are struggling with the $10
> trillion of debt that’s coming down the pike and the $20 trillion
> that’s already on the books."<END QUOTE>[/indent]
The huge stock market rise over the past few years hasn't made much
sense from a fundamental point of view, in view of the meteoric S&P
500 price/earnings index, and the recent further parabolic climb makes
even less sense. Even bullish analysts are saying that the stock
market is way overdue for a correction. Whether the stock market
continues, its parabolic climb, or has a small correction, or finally
has its expected major stock market panic remains to be seen.
Nikkei and
David Stockman interview
Related Articles
****
**** End of debt ceiling suspension on March 15 signals new Washington fiscal crisis
****
A law passed in 1917 places a limit on the amount of money that the
United States government can borrow. This amount is known as the
"debt ceiling" or "debt limit." When government debt reaches the debt
ceiling, then it can no longer borrow money to spend, until Congress
passes a law raising the debt ceiling to a higher value. In extreme
cases, the government has to shut down completely.
Every couple of years the debt ceiling has to be increased, and
there's a new political battle in Congress usually involving several
forms of extortion by both parties over what other spending programs
will be in the same bill as the debt ceiling increase.
Anyone who follows the political news will recall many well-publicized
debt ceiling crises, starting with the 28 day government shutdown in
1995. Recently, there have been debt ceiling crises in August 2011,
and January 2013.
You may wonder, Dear Reader, why there have been no debt ceiling
crises since 2013. The answer is that both parties decided in 2015 to
prevent a new debt crisis during the election campaign of 2016. So in
October 2015, they passed a bill suspending the debt ceiling, allowing
the Obama administration to spend as much money as it wanted.
Well, that debt ceiling suspension had an end date: March 15, 2017.
On that date, whatever the current debt is of the government, that
will be the new debt ceiling. That amount is approximately $20
trillion. In other words, within two weeks, the government will no
longer be able to borrow money, until Congress passes a new bill to
raise the debt ceiling.
The government can take "extraordinary measures" to keep running
without borrowing more money: not make payments to states, not pay
contractors, not pay bondholders, not pay Social Security, not pay tax
refunds, and so forth. This will cause a great deal of pain to the
people who don't get paid, but the government can keep running. But
estimates are that even these measures will run out in October or
November.
So Congress's agenda for this summer will be: repeal and replace
Obamacare, costing hundreds of billions of dollars; past a $1 trillion
infrastructure bill; pass hundreds of billions of dollars in corporate
and individual tax cuts; and oh, by the way, increase the $20 trillion
debt ceiling to something a lot higher.
CNBC and
CNN and
Washington Examiner
****
**** The velocity of money keeps plummeting, indicating no economic growth
****
Back in the 1980s and 1990s, politicians could always count on having
their debts and spending programs bailed out by economic growth.
Politicians are expecting the same thing today. All they talk about
is how they will spend money to grow the economy, and the economic
growth will wipe out the debt. It's a fairy tale that used to work at
the end of the last century, in a generational Unraveling era, but
stopped working about 13 years ago when we entered a generational
Crisis era.
What nobody wants to talk about is the velocity of money. This
indicates the rate at which people are willing to spend money. You
can't have economic growth if people aren't willing to spend money,
which means that the velocity of money would have to increase.
Instead, we have this:
Velocity of money, 1919 to 2017 (St. Louis Fed Fred Graph #366117)
When the real estate bubble burst in 2007, and the financial crisis
occurred, millions of people went bankrupt or lost their homes. At
that point, people stopped spending money. They used what money they
had to pay off their debts and save money. As a result, the velocity
of money has continued to fall steadily since then, just as it did
during the Great Depression and World War II.
That's the reason why there's been on economic growth in over eight
years, and why there won't be any substantial economic growth for the
foreseeable future.
Investors who are pushing the stock market to new parabolic heights
are completely oblivious to the fall in the velocity of money, and in
fact have the vaguest clue what it means. Similarly, they're
oblivious to the debt ceiling crisis that's approaching
And in news on Friday, Federal Reserve Chairman Janet Yellen indicated
that the Fed may increase interest rates on March 15. It's the Fed's
easy money policy that has been funding the stock market surge, so
chalk this up as one more risk factor for the stock market as the
summer approaches.
Dow Jones
Related Articles
KEYS: Generational Dynamics, Trump rally, S&P 500 price/earnings ratio,
parabolic, David Stockman, Ronald Reagan, debt ceiling,
velocity of money, real estate bubble, financial crisis,
Janet Yellen
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