More evidence that the stock market is irrational

I have frequently mentioned that the rise and fall of the stock market seems to have little to do with what is actually going on in the world and this week provided more evidence of this. On Tuesday, Trump in a tweet suddenly broke off talks with Democratic Party leaders who had been negotiating with treasury secretary Steven Mnuchin about another stimulus package. The stock market sank sharply on the news.

Then the next day, maybe in an effort to prop up the stock market which is after all the only economic indicator that he cares about, Trump tweeted would like to provide support in a piecemeal manner to selected industries like the airlines. In other words, he wanted Democrats to agree to just the things he wanted and abandon the things he disliked. This was a non-starter from the get-go and yet the stock market rallied on his words.

This baffles me. It should be clear by now that nothing Trump says should be taken seriously since he just lets loose with what he thinks at that moment even if it contradicts what he said just a moment ago. So why is the stock market responding mercurially to his tweet eruptions, since any stimulus spending requires detailed negotiations with many parties?

US shows decline in the Social Progress Index

Evidence continues to grow about the decline of the US. The latest comes from the annual report of the Social Progress Index. As Kevin Drum describes it:

The index includes things like health care, access to education, personal safety, sanitation, human rights, and so forth, and combines them all into a single number. This number doesn’t change a lot from year to year, and from 2011 to 2016 it went up by 0.34 in the United States. Since then, however, it’s fallen by an astonishing 1.06 in just four years. We now rank 28th in the world, just behind Greece.

Note that this isn’t an economic index. The US is still one of the richest countries in the world. We just aren’t using those riches to make much social progress.

This is really not a surprise. Social progress does not register in the consciousness of Trump and the Republicans. What drives them is power and greed.

There is always one major problem when you take multiple measures and then weight them to arrive at a single number. That single number enables you to compare different countries but that number also depends on how you weight the individual items to get the composite result and that introduces a lot of subjectivity because if you change the weighting, you can get a different rank order of countries. So the more meaningful use of such data is to take a longitudinal approach and see how, keeping the weighting system unchanged, the number changes over time, rather than take a snapshot approach and compare different countries at one time.

The 1% have sucked up $50 trillion from the rest of us

That the wealthy have been steadily increasing their share of the wealth has been obvious for some time. Reader Tadas sent me a link to an article that has quantified the amount siphoned off by them during the past four decades and it is a staggering $50 trillion since the year 1975.

This is not some back-of-the-napkin approximation. According to a groundbreaking new working paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distributions of the three decades following World War II (1945 through 1974) merely held steady, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone. That is an amount equal to nearly 12 percent of GDP—enough to more than double median income—enough to pay every single working American in the bottom nine deciles an additional $1,144 a month. Every month. Every single year. [My emphasis-MS]
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Telling it like it is

Stuart Varney is, along with Sean Hannity and Lou Dobbs, Donald Trump’s most devoted hosts on Fox News and in a recent show he was visibly upset when Paul Romer, a former chief economist of the World Bank, called the people who speak about economics for the Trump administration, such as White House economics advisor Larry Kudlow, ‘liars for hire’ and that they should not be believed. When Varney remonstrated with him, Romer did not back down.

The bizarro world of the stock market

I have long been saying that the US stock market seems to have almost no connection to the general state of the economy but instead seems mainly related to how the very wealthy are doing and this week brought more evidence of that. In March, the market plunged as the country shut down, which made sense. But since then the market has risen again, thanks to the actions of the government and the Federal Reserve to prop it up, even though things are very dire for most people who are suffering from loss of jobs, income, health insurance, and facing evictions.
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Modern forms of wage slavery

American businesses keep looking for ways to keep wages low. One way they have been able to do that is because since most people’s health insurance is obtained through their employment, that makes it difficult for people to leave since that would require them to find new health care providers, assuming the new employer does provide health insurance. And during the period between jobs, you would not have insurance. For many people, the least troublesome option is to stay with the same employer until it becomes intolerable.
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Bay of Piglets

Lost in the other news is this story of a group of Americans who apparently tried to launch an attack on Venezuela’s government but the plot was foiled even before it got off the ground and the plotters, that included two former members of the US Special Forces, were captured by Venezuelan fishing villagers and handed over to the authorities. The similarities of this botched attempt at overthrowing the Venezuelan government to the failed Bay of Pigs invasion of Cuba during the Kennedy administration in 1962 has led to the label ‘Bay of Piglets’ for this one.
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What a surprise! Big companies got most of the stimulus money meant for small businesses

One part of the stimulus program was the Paycheck Protection Program (PPP) that was meant to enable owners of small businesses to keep paying their employees even while their businesses were shut down. The program was limited to companies that had less than 500 employees. Why did employees of large corporations like Amazon not get similar protections? The assumption by the government seemed to be that these companies could afford to do so on their own without government help though in the absence of any law forcing them to do so, one cannot imagine Amazon’s Jeff Bezos depriving himself of even the tiniest bit of his huge wealth.
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The strange world of futures contracts

There was this news report in the last few days about the price of oil going negative to -$40 per barrel, giving the impression that oil producers were now paying people to take their oil. Of course, that could not be strictly true. It is not as if your local gas station was paying customers to fill their tanks. In actuality, gas prices were trading normally, though the prices have been dropping due to the lowered economic activity because of the pandemic leading to an oil surplus.
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The US obsession with the stock market

The last week has seen the media focus almost obsessively on the coronavirus and one aspect of its coverage has been its supposed negative effect on the stock market. I have been railing about the absurd obsession in the US with stock market prices, to the extent that the Federal Reserve of the US, supposed to deal with the fundamentals of the economy, cut interest rates by a huge amount, seemingly in response to the fall in stock prices before it was clear that the epidemic had any impact on those fundamentals. Not that it helped, since the stock market continued to fall anyway. We know that Donald Trump cares deeply about stock prices, the only thing really matters to him.
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