| MARKET ROUNDUP | |
| Dow | -61.49 to 16,987.51 |
| S&P 500 | -11.91 to 1,985.54 |
| Nasdaq | -24.21 to 4,567.60 |
| 10-YR Yield | +0.057 to 2.61% |
| Gold | -$8.60 to $1,229.30 |
| Crude Oil | -$0.51 to $92.26 |
(Columnist Mike Larson is out this afternoon. Mandeep Rai, editor of the Top Stocks Under $10 portfolio, is filling in. Mike’s afternoon column will return on Monday.)
Markets were taken by surprise with the recent growth in GDP that reflected a 4.2 percent increase for the 2nd quarter, coming after a 2.1 percent decrease in the first quarter.
Remember, that over time, stock market growth has to be reconciled with overall economic growth. It’s rare that the two decouple, or move separately. So what can we expect going forward? If growth in production stagnates, you can bet the stock market will follow suit.
The stock market has given us 35 straight months without a correction and is currently up 9.5 percent year to date after being up 32 percent last year. But can those kinds of gains continue?
First, you need people to produce goods and services to prop up those strong growth rates, but the labor force participation rate has been consistently declining.The long-term average growth in the stock market is around 7.5 percent, and the long-term average GDP growth is 3.3 percent. Is the current reading of 4.2 percent sustainable? I don’t think so, and here’s why …
The problem is that we have had record numbers of workers retiring at age 65, and the number who hit that age between 2010 and 2013 rose by 33 percent. What’s more, relatively lower birth rates in the 90s and 2000s mean less people are entering the labor force to offset the retirements.
Click for larger version.
Source: US Census Bureau
That’s the demographic issue.
Second, is the productivity issue …
If companies keep holding on to record levels of cash, or coming up with intriguing ways to engineer higher earnings i.e. with buybacks and buying lower P/E companies, they are surely not spending money on new technologies to increase productivity or in research and development to support future sales growth.
Third, the largest component of GDP is the consumer, and he/she hasn’t seen any real wage growth. Nominal wage growth is around 2 percent, but so is inflation as shown in the chart below.
Click for larger version.
Source: Bloomberg
However for the time being, consumers are enjoying lower gas prices. But overall trends for higher energy prices remain intact, so enjoy the lower prices while you can. The point is that lower gas prices, not wage growth, is helping consumers keep more money in their pockets.
Hopefully that will change, but some of these trends can take years to reverse. And, to that effect, it’s just a matter of time before equity markets will realize they are facing an uphill battle if economic growth decelerates.
| Â OTHER DEVELOPMENTS OF THE DAY |
-
The Apple Watch will include NFC payment using the Apple Pay system, meaning that customers can link their credit cards to their watch to pay for items by holding their watch near a special sensor.
What’s more, it also has a clever way of defeating thieves from gaining access to those credit cards.
-
India is expecting investments worth nearly $100 billion in the renewable energy sector in the next four to five years, Piyush Goyal, minister for power, coal and renewable energy in the Narendra Modi-led government, said Thursday, according to media reports.
-
Olive Garden is hurting itself by piling on too many breadsticks, according to an investor that’s disputing how the restaurant chain is run. In a wide-ranging critique, the hedge fund Starboard Value says Olive Garden restaurants lack training and discipline and that servers bring too many breadsticks to tables at a time. That leads to waste — and cold breadsticks, Starboard says.
What’s your opinion? Do you think our economy will continue to grow, or is it doomed to stagnate? Let us know in comment section below.
Best wishes,
Mandeep Rai
P.S. If you haven’t yet registered for Martin’s three-part video series “The Ultimate Wealth-building Strategy for Uncertain Times” your time is almost up! Make sure to click here to tell us you are coming, then we can send you your “Buy” and “Sell” lists plus instructions for attending!
{ 24 comments }
The FED system is doomed to fail by design without a government controlled forced “reorganization” . Any system based on the continuous expansion of debt based growth, which requires continuous expansion of consumption, is doomed to fail in any scientific sense. To further complicate this already unreliable system, we have a concentration of power within several large Corporations in each economic sector. This is exacerbated by the Corporacracy’s ability to evade taxes and write its own “bills” for our so-called public servants to make LAW. The fact that so many qualified college grads cannot find jobs speaks to the outsourcing of Jobs by corporate America and flies in the face of the baby boomer retirements most of which are steady consumers. Income inequality, obscene medical costs which make US medicine the most expansive in the world and the leading cause of bankruptcy and the rise of the Finance sector since 1980 has only added fuel to the fire. It is only a matter of time.before the inevitable collapse and a new system is forced upon the masses.
Are bread sticks Olive Garden’s only problem? How about just plain bad food! Doesn’t Starboard know that the entrees come to each restaurant precooked and frozen in plastic bags? Lets see; 1. Not fresh 2. precooked/frozen 3. reheated by boiling in plastic bag.
Strike three, you’re out!
Olive Garden’s (Darden’s) Death March
If managers are spending much time counting bread sticks then they are headed out the door because clearly they are not growing and sales (revenue) are not increasing as fast as costs (food and labor cost inflation). Restaurants in particular are impacted by new minimum wage law increases at the state and Federal levels. Obama Care also is a new cost that must be paid by cash-strapped restaurants like Olive Garden. In a competitive market, they can only raise prices so much without causing customers to find other alternatives.
To whom it may concern!There is nohting wrong in supporting someone for being “your kind” or a ” good friend”, But when someone is involving in a “criminal act” and “terrorizing” innocent people, WE ALL SHOULD JOIN TOGETHER to “ERASE” such a criminal for his/her inhuman acts no matter whohe/she is. That is everyone’s responsibility in our tamil communityIf anyone who does not do that, that human being is “worthless” and a “traitor” for our whole tamil community!When you are talking about cyber crime, how can you leave out the “real villain” who terrorized everybody?????Only one of the following, could be a REASON for your cowardly act1) Are you a good friend of him??2) or ARE YOU AFRAID of him????It does not matter whether he is is a friend or you are scared of him, you should be ashamed of being yourself no matter what reputation you have in the internet world!
Hi!, Money & Markets Staff Et Al:
Isn’t it an abnormal sin to watch consumers benefit from slightly lower gas prices? This inordinate condition must be stopped in its’ tracks ASAP don’t u think? Sin like this should not be tolerated and so the gas companies should immediately if not sooner cause gas guzzling consumers to repent of their sin right away and get fuel back up where the sin is erased and consumer savings are eradicated!! After all saving money in the land of the FREE should no longer be tolerated by the corporate Giants and OUR Socialized Government. All excesses beyond money needed for bill paying should be forced by lower interest rates into the US DOW Stock Market to artificially create the façade that OUR economy is much better with consumers taking on more risk rather than savings!!
Only by the grace of the FED. are we saved!!
RUSS SMITH, CA. (One Of Our Broke, Fiat Money States)
resmith1942@gmnail.com
How neat! Is it really this sieplm? You make it look easy.
Oil, Gas and Natural Gas will grow in Southeast and Southwest states. Many jobs will be created in these states as well as North central and N. east. However, many states will bank rupt.
BANKRUPT
Mr. Raj needs to go back to school.
o First, only those between 18 to 65 are considered by the Labor Dept. to be eligible to be counted in the labor pool.
o Second, most of those born n the 90s are still in school and not in the labor force. This is especially true since most jobs now require a post secondary school education.
o Third, lower costs of heating oil, natural gas and propane, this winter should put more money in consumer’s pockets.
o Fourth, one school believes that the p/e ratio should be 1 over the 30 year treasury bill yield. That would mean that a yield over 5% is priced into the market. The present yield is less than 4%. Therefore, there is still room for multiple expansion.
Technology has reduced the number of people needed to run many parts of the economy. I don’t think a shrinking work force will hurt it, but large numbers of unemployed people can be a problem. Employment need to spread around so all people can be involved in running society.
The details of supply and demand are changing a lot so companies have to adapt or die. Maybe some of them are trying to prepare but still don’t know what they need to do to survive and prosper.
Since growth of our economy is based on consumption, consumers are its backbone. The multiplier effect of consumer spending exceeds the multiplier effect of government spending. However, we have a scenario in place in which wages are stagnant and the government is spending on wars and more wars instead of taxing appropriately and spending on projects to build a better future…infrastructure, smart grid, renewable energy, education (including higher ed), etc. which promote the development of products that the world actually needs and just might buy. My money is on slower growth.
We know it has to crash but the folks in your business rudely refuse to tell us when. We know that one of these times a down turn will not rebound, oh, this must have been the one, don’t tell the Fed. We know that free money to millions must come to an end, perhaps when the printing stops. It all sounds like that Collins girl singing, “Send in the Clowns.”
Olive Garden – hope they didn’t pay anything to find out about too many bread sticks!
Nothing good is coming of this …. all the deceptions and illusions will only lead to harder
times down the road ; nothing has really been fixed but only delayed by zero percent
and new credit.
All the new cars with their 72 months payments ….
Everyone is Nigga rich ; today
But what about tomorrow ??
We do not have a sound system … stability is an illusion.
The terminal condition of DEBT … is not CURED !!!
it is doomed to stagnate. Gold/silver will bottom out around $400/$5 an ounce in less than a year. Stocks will deal a crushing blow to investors as well within 3 years or less. It’s the baby-boom cycle! And it happens every 30-45 years like clock work!
The current economy is beyond salvaging. The Federal Reserve is driving us to disaster. I am now almost 84 years old, hence I have lived through most of the mess that the FR has caused. We lost what economic freedom we had with FDR and his pre-war nonsense. Post war was a partial success aided mostly by the GI Bill and the willingness of the poor and middle-class to do real work in order to further their lot. However, all of that is gone. The rich get richer and everyone else poorer. Despite what you and some other good writers have to say, it is impossible for a person just out of college, or anyone for that matter to build wealth starting with zero. Unless wealth is inherited, or unless someone is extremely lucky, wealth building will stop within two to three generations.
Just wondering. In your increase in retirement %s do you include those from the government positions? They produce no goods so calculating lost production numbers with them might not be entirely accurate since they account for a very high portion of retirees?
First, the 2nd quarter did not grow at 4.2%. When the real numbers come out you will see second quarter GDP in the red or real close to it. 3rd quarter GDP will for sure be in the red if we can get the Government to to actually print the real numbers. My projection, America is going into another recession on top of a recession that did not really end in 2009 as the Government said. Politics is causing the US Government to lie to us about almost everything. The ISIS problem is manufactured by the Obama administration to detract from the US economy issue. Brian
I beleave the Economy will get worst .. our leaders or Politicians continue to support Wars with no end in sight .. now ISIS and more money spent and accomplish NOTHING . Bombing Syria and Iraq will not get the job done .. use more American Military will cost more Money and kill more of Americas BEST.. POLITICIANS and Corporations are destroying america .. for the love of money .. WARS ARE A RACKET .. prove nothing .. drain man power and money and accomplish NOTHING .. America has less people working .. jobs being sent overseas .. Corporations get tax brakes for going overseas. and our Federal Government gives them CORPORATE WEALFARE .. AMERICANS are making less money .. pay is pittifull … children starving … over 60 MILLION People in ( POVERTY) The jack ass Federal Reserve keeps printing Money out of thin air . no GOLD or any thing to back up the Dollar ..the fed reserve should be abolished .. it is CRIMINAL .. EVERY AMERICAN IS GOING TO LOOSE THEIR ASS .. OUR POLITICIANS all belong in JAILS .. they dont work for the people of america .. they work for them selves .. Corporate America runs America , and has all Politicians in their Pockets .. the Supreme court is controled by Corporate America.. Americas DAY’S are NUMBERED .. we don’t have a DEMOCRACY any more .. we never did have one .. the WEALTHY control all the wealth … america will be a 3rd World Country in the Future if nothing is done to stop the Madness of this Government and the wealthy
Sorry, but I disagree. I think stocks still have another 2 or 3 years of growth, until the Dow hits 20,000. Of course we’ll have pullbacks now and then, but based on corporate profits and low interest rates, I am bullish on equities. The key is to have a diversified portfolio with a little (but not significant) position in commodities (including gold).
I am going to take a different tack rather than ranting. I want to address what a group of good, well intentioned people had to say above and try to shift their focus to the real issue – Who Rules America ?
Hank (5:27 PM) gets it, dead solid perfect…income inequality. I would add real wealth inequality. Corporate America wrecks everything to feed its insatiable greed. Does Corporate America own the politicians like Senator Ted Cruz of Texas who refuse to admit the real issue. Of course, but who owns Corporate America ? Those who Hank believes are on the other side of the income inequality equation ? CORRECT.
H Craig (6:20 PM) is a True Believer and is drinking the Koch Brothers/TEA Party Kool-Aid as fast as they can serve it. Minimum wage is not even a pimple on the ass of Corporate America when it has trillions stashed in off shore accounts around the world. It is a carefully orchestrated campaign to get the Middle Class to blame those on the lower rungs of economic life for all our problems. Put minimum wage in perspective. The typical corporate CEO makes 400X what his/her average employee makes – and that number is now 13-1/2 years old. The income inequality is far worse today, my friends. Obamacare ? Another Koch/Tea Party mantra. Obamacare is the first real attempt in my lifetime to fix an out-of-control problem – runaway medical costs. Obamacare is not perfect, but it is a start. Insurance companies can no longer include the cost of their private jetliners, et al, in calculating premiums.
Russ Smith (6:25 PM) has the passion and anger, but he is not focusing on the real culprit. The problem is not our “Socialized†government, but is really the 1% wealth royalty who own and run the government through its purchase of politicians like Senator Mitch McConnell of Kentucky, the Republican Senate Minority Leader who has earned the name “Mr. Filibusterâ€. If you have a progressive idea to solve some problems, McConnell will be sure to talk your ideas into an early grave. The Koch brothers own him lock, stock, and barrel.
I think Larry (6:29 PM) has given up. I hope not.
James Piper (6:31 PM) wants to debate irrelevancies, and the Koch/Tea Party crowd is loving it – that is what they want, your attention to be diverted by irrelevancies so you do not focus in the REAL ISSUE – Who Rules America ?
Dianne (6:47 PM) gets it. Period.
J Clark (7:26 PM) focuses on “the crashâ€, not who will cause it or who will benefit from it. If you can accept that the 1% wealth royalty owns Corporate America AND the United States government, through its ownership of legislators like John Boehner, Republican Speaker of The House, you will realize why the post 2008 recovery has not benefited the Middle Class but has further enriched the 1% wealth royalty. Which group exclusively benefited from the post 2008 recovery is a fairly evident fact which has been discussed in this very space by Mike Larson, et al.
Anthony (8:32 PM) is fairly pessimistic. Who thinks they will have the discretionary wealth to invest in gold and benefit from its Bull Market run from US$ 400 per ounce (Anthony’s estimate) to its next high near Larry Edelson’s forecast of US$ 5,000 per ounce. Let me help you. Not Anthony. Not anyone who has commented in this blog. Not anyone in the Middle Class. The 19% directly above the Middle class on the real wealth stratification will participate some, mostly as a reward for doing what the 1% royalty employs them as corporate CEOs to do. But folks, the real winners are gonna be – the 1% royalty.
Vincent Passiatore (12:31 PM) nailed it, folks. Vincent is correct when he says, “Corporate America runs America, and has all Politicians in their Pockets…†and “the Supreme court is controlled by Corporate America…â€. but he does not take it the final step, who owns Corporate America ? He gives us the answer in an unspecific accusation, “…the WEALTHY control all the wealth…â€
My question at the beginning was “Who Rules America ?†You have all expressed fear, anger, and resentment at being caught up in a disaster you did not create. Now, go the extra mile and find out who has the puppet strings that control everything and has brought the world crashing down on YOUR HEAD.
Google “William Domhoff Who Rules Americaâ€. Domhoff is a research professor in Sociology at the University of California at Santa Cruz, and his revelations will anger you and enrage you, but will set you free. There is more than you can read in weeks, so look at one link to start with, Wealth and Income Distribution, and go from there. See how much real wealth (in Larry Edelson’s definition of wealth) you have lost in the 15 years since Bill Clinton left office.
Do not sit there and be angry or frightened. I’m 70 years old, I have a train wreck for a heart, and I doubt I’ll be here much longer, but you all still have time to fight back and slay the dragon. Do so for the sake of your children and grandchildren. It is not going to be a one election contest, and it is not going to be easy, but then Valley Forge was not easy either.
It is believable that retail money will continue to flow into the US, causing the Market to continue to go up.
Concerning Olive Garden serving to many breadsticks. I would first have to go to Olive Garden to receive to many bread sticks. I have no desire to eat there.
Stagnate