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A Vampire Market: the Next Coming Economic Collapse

 Corporate America is having a party.  In the age of Trump they get everything they want and the markets are rallying like it’s never going to end.  All hail the Donald!  The Dow Jones Industrial Average climbed from approximately 20,000 to 26,000 since the election of Trump.  Standard & Poor’s 500 went from roughly 2,300 to 2,800 and the NASDAQ 100 shot up from 5,000 and change to nearly 7,000.  By any account that is one hell of a rally.

The question is why?  Is the economy truly in such great shape?  The gross national product, housing starts, corporate profits and employment have all been on a steady rise since the election of Barack Obama.  The price of homes has been on the rise since 2012.

The overall pattern of positive economic growth is a steady rise since the collapse of 2008.  But the markets did not begin to celebrate until the Donald was elected at the end of 2016.  CNN describes the Trump rally as “runaway freight train” [1] and that is exactly what it is.  Like the Amtrak passenger train on its virgin run in Washington state, the markets are rolling faster than reason can justify and the safeguards to slow it down are not in place.

Bucking the upward trend are stagnant wages and personal debt.  Despite the repeated assertions of Trump and his trumpeters, the Bureau of Labor Statistics estimates real average hourly wages rose by 0.4 percent in the last year. [2] That is an increase that even the poor would hardly notice.  Market Watch noted that household debt had surpassed the critical levels of 2008 by August of 2017 and Pew Research noted that real wages have not moved significantly since the 1970s.

What gives?  The numbers do not reveal any significant divergence except that the Republicans – the corporate supreme party – now has complete control of government.  While Barack Obama was certainly a friend to Wall Street, his replacement is a complete sellout.  Any concerns Wall Street might have had that the Donald meant what he said about helping working people – striking down NAFTA, CAFTA and Free Trade policies – seem to have been alleviated with the passage of time and tax reform – a massive transfer of wealth to the wealthy.  The White House has worked overtime eliminating regulations and enforcement of regulations on both industry and the financial sector.

The watchdogs, the oversight agents and the regulators are all on vacation and the alchemists are back in town.  Despite the great crash that signaled the failure of their first massive experiment in converting crap to gold, they remain confident that the dark art will work in the long run.  They can create wine from water if only the doubting crowd will turn their heads and allow them to operate in secrecy.  It’s all hocus-pocus anyway so why not go all the way?

The real question is:  How long can you continue to feed the markets on the investments of the wealthy alone?  The workers have no money to spare.  The ever-shrinking middle class is waking up to the fact that they can hardly make ends meet.  The last time the ordinary people invested in the markets they got burned and burned badly.  They learned that the small investor is the first to take a hit.  They learned that what the markets consider a correction is enough to knock them out of the market at a cost of their savings, their college funds, their retirement and their rainy day fund.

Here’s my prediction:  If the ordinary people take the bait and come back in the markets, they will almost immediately be knocked out.  That’s how the money people cash their checks.  That’s where the money comes from.  Only the wealthy can afford to buy back in when the market bottoms out.  When they do they will own twice what they owned before on the same money.

Donald Trump is right about one thing and one thing only:  The system is rigged.  Unfortunately, the system is rigged in his favor.  The tax cut was not the biggest in history but it was one hell of a bump.  Republicans will have no problem raising contributions for the midterm elections.  If they succeed in keep control of congress the party will go on but it cannot go on indefinitely.

It will end when the people finally decide they’ve been ripped off one too many times.  It will end when they put leaders in power who are determined to look behind the curtain.  It will end when the voodoo priests are exposed as charlatans and the alchemists are run out of town on a proverbial rail.  It will end when the market – built on a foundation of lies – collapses of its weight.

It ends when the real world invades the fantasy world where the party goes on forever.  It ends and then the cycle begins again.  The market waits like a vampire in the shadows of jazz town until the people have forgotten the danger and are once again willing to stay out after the witching hour.  The market will once again offer sweet temptation – a party that never ends, intoxication without a hangover – and the ordinary people will be pulled into the maze.

I began writing this piece at the end of January when euphoria was taking hold.  As it stands now on the fifth of February the Dow Jones Industrial Average has lost some 1,800 points over two trading days.  Realty injected a jolt of caution to all individuals who were considering investing in the Trump market.  In one fifteen-minute stretch, while the president pimped his tax reform in some plant in Ohio, the Dow lost seven hundred points.  During those fifteen minutes careful listeners could hear a great flushing sound.  It was the sound of small investors being flushed from the market at a dizzying loss.

Most analysts delivered the counter-intuitive narrative that institutional investors were spooked by an incremental rise in wages.  They believe it foreshadows a rise in inflation and inflation is the death knell of bull markets.  [3]

How ironic is that?  A rise in real wages is exactly what the real economy needs.  A proportionate rise in inflation – the cost of goods – would negate increased wages while simultaneously stimulating increased interest rates.  Increased interest rates would of course boost the bond market but kill the stock market.

The market is therefore fully invested in stagnant wages, minimal inflation, increased corporate profits and low interest rates.  It is a corporate market and its enemy is the working class.  If you work for a living, why would you invest in a machine that consumes you like a lump of coal in a hot furnace?

Don’t be a fool.  This is a rich man’s market.  It steals your money and transfers it to the top.  It consolidates wealth and secures power in the hands of the one percent.  The only place reserved for the small investor is labeled:  Sucker.  Stay out of it.

Until they reform the market from top to bottom by empowering the small investor, reintroducing regulations with bite and regulators with both the power and the inclination to use it, this market has no place for the likes of you or me.

Notes.

[1]  “Dow 26,000: The stock market is a runaway freight train” by Matt Egan.  January 16, 2018.

[2]  “Earnings and Wages:  Bureau of Labor Statistics.”  January 3, 2018.

[3]  “Dow Jones suffers worst fall in two years amid fears of interest rate rise” by Richard Partington.  February 2, 2018.

 

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Jack Random is the author of Jazzman Chronicles (Crow Dog Press) and Ghost Dance Insurrection (Dry Bones Press.)

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