The Big Picture |
- Two Election Winners
- 10 Wednesday PM Reads
- Disbelief in Equities is What is Driving Them Higher
- The spread of state minimum-wage laws is making Congress look bad
- LOL: The American People Have Spoken !
- 10 Wednesday AM Reads: Post Election Edition
- TDS: Money is the Big Winner of 2014 Midterms
| Posted: 06 Nov 2014 02:00 AM PST Two Election Winners
Two winners emerge after the election. One is the Gini coefficient. It measures the income divide of the population. It has been widening. Those at the top income level have improved their wealth. The middle income level has been eroding and is experiencing some pressures because of it. And, the lower income-level cohort has arguably grown in numbers and is confronting a host of issues. The Gini coefficient's upper levels rejected increased taxation and experienced an anti-business attitude conveyed by Washington. They voted. The lower levels stayed home. They elected to give up and not participate. The pundits are busily debating why. The middle level was promised a lot of attention and support but did not receive either. The polls show they do not approve of either party. Many despise Washington. When faced with election choices, they elected to reject six years of old and worn promises with no delivery. The Gini coefficient tells part of the election story. The second winner is the labor participation rate. It has been falling for 15 years. It peaked when the dot com era attracted an extra 1.5 to 2 million folks into the labor force to participate in businesses that were new, exciting, and in many cases not profitable. Those businesses were funded by speculative equity money. Most of them subsequently collapsed. The jobs they had generated also collapsed. Since the tech bubble, the labor participation rate has been in a constant decline. Since the financial crisis of 2008–09, it has accelerated downward to levels not seen since the 1970s. The US also has record numbers of people receiving permanent disability benefits. We have not seen any breakdown of voters by disability category, so we don't know how they voted or if they voted. We are only guessing that they did so with a sense of insecurity about the status quo. Meanwhile, the US has an older population worried about future income and financial security. Older Americans have experienced financial repression because of the sustained very low interest rate policy. Any older, retired saver and investor who voted yesterday did so with the experience that a 5- or 10-year bank CD has rolled over into the new interest rate environment. Twenty-five million Americans know that their old 5% and 6% municipal bonds have rolled over into 2% and 3%. We do know that the older voter turnout was high and voted decisively against more business as usual in Washington. The result of this election may have been foretold in the economic statistics that we see. The Gini coefficient gave us guidance. So did the declining labor participation rate. Cumberland Advisors' clients, staff, consulting professionals, and network of colleagues in financial services are involved in daily business activity at the upper level of the Gini coefficient. Our daily does not often encounter victims of a declining labor participation rate. Most of our clients work if they choose to do so. We are in the business of managing portfolio assets. Poor people do not have portfolio assets. Those with middle-class incomes have limited portfolio assets and are worried about them. The top level of the Gini coefficient has had a remarkable recovery in asset values. The middle class and the poor have not. That widening of the Gini coefficient worries us. This election outcome was about the divisions within our society. Those divisions will continue for the next two years. They are likely to be just as profound in 2016. That presidential race started in earnest last night. Let's get to the business issue. We remain fully invested in the US stock market in our exchange-traded fund (ETF) strategies. We believe US and worldwide stock markets have an upward bias. We continue to see the short-term interest rate at very low levels worldwide for an additional period of months or years. ~~~ |
| Posted: 05 Nov 2014 02:00 PM PST My afternoon train reads:
What are you reading?
Inflation markets have declined throughout much of 2014
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| Disbelief in Equities is What is Driving Them Higher Posted: 05 Nov 2014 09:30 AM PST As a fan of investor psychology, I find sentiment intriguing. Measuring it is a challenge. We can't trust what people say because they become bullish after they buy and bearish after they sell, convincing themselves that past trades were the correct way to go. Humans are notorious liars — especially to themselves. When they are not lying, they often can be found busy making excuses and other rationalizations for their actions. Hence, we need to find more objective ways to view and measure sentiment. That is why I find Jason Goepfert's SentimentTrader website so intriguing. He follows an extraordinary number of indicators that track investor sentiment. One of his recent comments has been making the rounds on social media. Paraphrased to remove the trader jargon and hyperbole, it read something like this:
The market condition that Goepfert is describing can best be called "persistently overbought." As we have noted before, persistently overbought stock markets reflect strength and demand for equities, often in a period of deep pessimism. That's seems like a pretty good description of current conditions. I contacted Goepfert to see if he could provide more insight into what this unusual sentiment reading means. After all, sentiment measures are notoriously fickle, and tend to generate more noise than signal — the exception being when they reach extremes. Which was exactly his point. On Oct. 15, SentimentTrader's metrics reached just such an extreme. Out of 85 measures he tracks, 43 reached unusually high levels of pessimism all at once. That many metrics pinning the needle at the same time has only happened at other intermediate-term lows, according to Goepfert.
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| The spread of state minimum-wage laws is making Congress look bad Posted: 05 Nov 2014 08:00 AM PST |
| LOL: The American People Have Spoken ! Posted: 05 Nov 2014 05:30 AM PST |
| 10 Wednesday AM Reads: Post Election Edition Posted: 05 Nov 2014 04:45 AM PST It is the morning after the night before, and there is a new Senate in town. Its a special election edition of our morning train reads:
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| TDS: Money is the Big Winner of 2014 Midterms Posted: 05 Nov 2014 03:00 AM PST |
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