Panic – or Laugh? | Barataria - The work of Erik Hare

“This is no time to panic. There’ll be plenty of time to panic later.”
– Groucho

So far this year the S&P500 has lost 100 points (5%). Where did they put them? Isn’t hard to lose something that is pointy? Despite looking under every sofa cushion the search has so far remained pointless.

It may not seem like the time for humor, but the US market reaction to the meltdown in China is purely comical in many ways. It shows how much the market is responding to emotion rather than reality – and the prevailing emotion is fear. Run away!

Sign it and get to work!

By the time you read this, the December employment report from the BLS will probably be out. Given that the ADP December report showed a strong gain of 257k jobs we can expect something similar from the “official” numbers – despite the fact that this report is unreliable and noisy. Nevermind. The best bet is for the headline unemployment rate (U3) to fall from 5.0% to 4.9% and the more important comprehensive U6 rate to fall from 9.9% to 9.7%

We’re starting to absorb workers who are part time for economic reasons, which is a big and important change.

Consumer spending is up as well, as shown by the strong gains in holiday sales of 7.9% over last year. Milder weather, so far, looks to avoid the January blahs that held us back the last two years and may keep construction moving ahead. We have not had a year with these two this strong since 2004, the only year during the Managed Depression of 2000-2017 that managed to hit the magic 3.2% annual growth that has been the Post-WWII average.

Bad stock news requires a picture like this. Apparently, these traders still exist.

That’s my call for 2016 as we continue to move ahead – 3.2% GDP growth, 8% growth in corporate earnings – along with a flood of at least $3 trillion in money from developing nations into US stocks.

If you believe any of this, why is the stock market dropping?

While the drop in Chinese stocks is entirely predictable for a lot of reasons, it’s still scaring the bejaysus out of investors. The US market did get ahead of itself in 2014 and spent 2015 moving up and down in spasms that ultimately came out about even. With the great cyclical bull market of 2010-2014 officially over the weight of the long-term secular bear market, which is to say the cycle we have seen through most of this Depression, is finally weighing.

The immediate flight is to a safe harbor of quality, which is to say long term Treasuries. The yield on the 10yr is down to 2.15%, way off from 2015’s peak of 2.48%. It should continue to go lower through the first six months of this year as turmoil continues.

Forget time – money is what really flies

Eventually, of course, the good news on on the economy and money flowing in should find its way to US stocks. But that won’t happen for another six months at this rate – and by then the S&P500 may be down another 5% or more for a net loss of 10% on the year. And it’s not as though the fear is not justified with Saudi Arabia acting very childish and stupid, too. There is a lot to sort out before good news actually looks like good news.

Naturally, this belies the old idea that the stock market is looking out XX years into the future. That hasn’t been true for a very long time, if it ever was. The financial markets look out no more than one quarter at best, and right now all they see is risk. Risk of war, risk of higher interest rates, risk of collapse … it’s all a big gamble.

Construction is picking up along with everything else.

Actually, it isn’t. Just like 2015, when workers’ wages did finally start to rise, what’s good for the average worker is what’s bad for Wall Street. There will be pressure on companies as wages rise and there will be skills gaps that are hard to fill. The run of stocks, where the top end of the nation got their cash first, is probably over.

It’s time for working people to take their turn.

Is there really nothing but risk? Not at all. The stock market is rather stupid and reactionary. There is, or will be, a great buying opportunity in the next few months as the panic subsides and China finally finishes either evaporating or shedding wealth to developed nations – primarily the US.

Meanwhile, this is no time to panic. It’s a good time for comedy, actually.

24 thoughts on “Panic – or Laugh?”

Cheddarhead Paul Ryan of Wisconsin is speaker of the house, so things can’t be all bad. : )

For those not in the know Minnesota and Wisconsin are historically and culturally the same state. : )

Erik Hare says:

8 January 2016 at 0:40 | Reply

We are in the same part of the Midwest, so there is a common culture. But the primary difference is this:
In Minnesota, the definition of a “small town” is a crossroads with a gas station, a bar, and two churches.
In Wisconsin, the definition of a “small town” is a crossroads with a gas station, a church, and two bars.

Question from the ignorant who is attempting to learn – 🙂 If corporate gains are 8% then why is there pressure to keep a lid on wages? The charts showing the profits of corporations since the 70-80’s as compared to wages is grim and disturbing, to my mind – as a corporation can only have those gains if workers are plodding away at providing goods/services – 🙂 What point am I missing? Thanks!

Erik Hare says:

8 January 2016 at 16:15 | Reply

There is upward pressure on wages and it will continue. Companies will try to keep salaries low where they can, but they can’t anymore.
So once the thinking starts to change we can only hope that companies will start looking at higher wages the way you do – we hire the best, we pay the best.
- TamrahJo says:
  
  8 January 2016 at 18:02 |
  
  🙂 – I’ve switched many of my needed business services to young, (but not too recently started up! LOL) companies this year – and though their services do cost more, they provide much better service – I get help from folks that are creative and go getters AND whose business models seemed based more upon a collaborative business model, than a “I’m a CEO – you the Peon” mind set! I’m loving what I’m seeing in the marketplace of biz’s available for me to support in my industry! Let us hope it spreads out as much as possible! 🙂
- Erik Hare says:
  
  8 January 2016 at 18:56 |
  
  I think this is the wave of the future for a lot of reasons – your experience is probably the best one.
- TamrahJo says:
  
  8 January 2016 at 19:03 |
  
  I believe it should be the wave of the future – but, like everything else that creates lasting, sustainable change in our culture, IMHO, it more about how you vote with your ‘consumer’ dollars than it is about waiting for wheels of justice/change to grind slow – LOL – alas, it’s work – means a lot more work/research on my end – but ah well! LOL
- Erik Hare says:
  
  8 January 2016 at 19:04 |
  
  Yes, in the end “value” and “values” are the same word. We have to seek the value we really want economically as well as socially.
- TamrahJo says:
  
  8 January 2016 at 19:07 |
  
  I have more faith in supporting businesses that match my values somedays than I do in my one vote counting! LOL

Sort of a good call on the unemployment – a big gain of jobs but no change in the unemployment rate? What happened?

Erik Hare says:

8 January 2016 at 18:55 | Reply

I don’t really know. I can tell you the unemployment rate for 20 year olds is much lower, in the range of 4.6%.

Looks like they already followed your advice and stopped panicing.

Erik Hare says:

8 January 2016 at 19:03 | Reply

It is better today. But the 10yr remains low at 2.14% and I bet is heading lower.

Things are much better this year than last – and a lot better than a few years ago. People have money and are spending it. Many of my smaller clients did hire people in 2015 so their end of the year W2 load is greater.

Erik Hare says:

8 January 2016 at 19:04 | Reply

That’s what I’m seeing, too. There are a lot of jobs out there.

In 1930 the federal reserve cut the money supply. This ensured there would be a great depression.

In 1930 1931 and 1932 the economy kept sliding and sliding and sliding…

I think most will agree that the good things that Hoover and Roosevelt and congress did to revive the economy were not done in a large enough magnitude. They did not do enough.

At least we sort of understand the problem in hindsight.

The interesting thing was under Roosevelt’s banking reform they still let about 4000 smaller or rural banks fail. They were considered under capitalized.