Secular bear Rosie not throwing in the towel . . . again

 Rosie was on the wrong side of the trade in April 2011 when the bear went bullish. Is he again now?

He uses the same phrase, too, "not throwing in the towel", lol.

In April 2011 he claimed he wasn't throwing in the bear towel after the S&P 500 had already recovered from the 2008 debacle. Then the market slid 20% all the way to October 3, 2011, with the index falling to 1099 again, right where it was exactly three years earlier on the very same date.

It was . . . spooky!

If you had followed his take that April, you'd have lost 20% again. On top of all your losses in 2008. Ouch. Ouch.

Many of us who had kept our powder dry couldn't believe it in October 2011. We thought we were headed back to the depths of March 2009 again, too, just like the last time the market fell to 1099. I mean, that was a free-fall from there in 2008. TARP got signed in a panic that week to stop it, to no avail.

But October 2011 turned out to be more of a retest than we realized, one of the last great buying opportunities of the period. It was a brutal, crushing period of doubt, which some of us still live with.

Now it's the reverse, with unbelievable euphoria everywhere, with the S&P 500 at 6075.

A period of euphoria seems to me like a damned strange time to throw in the bear towel again, after missing out for two years by his own admission. I have no idea if Rosie is the contrary indicator he appears to be.

But the valuation of the market is pre-1920s crazy right now. It is literally not on the charts of our experience in the post-war, or even from the roaring '20s. We have GDP of $29.354 trillion, meaning a valuation of 207, when fair value has been 81 since the Great Depression.

I'm not in it, and I intend to keep staying out, because I can.

Good luck out there to those of you who go where angels fear to tread.

Stocks remain wildly overvalued and seriously underperforming

 The S&P 500 averaged 5,792.32 in October 2024 (the all-time high was on 10/18 at 5,864.67).

Nominal GDP was updated on Oct 30th at $29.349924 trillion for 3Q2024.

That yields a ratio of SPX/GDP of 197.35 vs. median of 81.

Stocks remain wildly, obscenely, off-the-chart overvalued.

The formula is GDPx = SPX.

29.35(81) = 2,377.

The market would have to fall 3,415 points just to hit median valuation at current GDP, or about 59%.

You can see a similar analysis here, where the median is 79.7 vs. current 200.7.

Real return from SPX since Aug 2000 is now about 5.1% per annum vs. 7.4% before that (including the Great Depression, the depression of 1920, and every collapse before that going back to 1871), 31% worse.

We are living through developments echoing the lunatic era of the 1920s, which ended in tears.

Owe no man anything . . ..

 

 

 

Sometimes it's not the economy stupid: Headline employment under Obama didn't recover until May 2014, but he got re-elected in 2012 anyway

 Six years and four months went by: Jan 2008-May 2014.

And economic confidence actually declined from -11 in 2012 to -10 in 2014 when it did!

It's one of the craziest things in US political history, comparable to FDR getting re-elected throughout the Great Depression, which his economic experimentation only made worse.

By October 2012, 72% said the effects of the Great Recession were still the most important problem, compared to 43% today in October 2024, but it didn't matter that Obama wasn't solving it. He beat Romney anyway.

Is this one of those sometimes?

The same phenomenon may be happening today, but in reverse.

Harris stands to lose despite economic indicators which are chugging along in her favor, or at least not falling apart, to which those 43% seem oblivious.

Civilian employment in July and September 2024 remains near the November 2023 peak. Core inflation is still too high at 2.7%, but it isn't in the 5s anymore like it was for four straight quarters. Congress has thrown the book at the economy since 2Q2020, with nominal GDP growing at an astounding 9.84% compound annual rate because of pandemic spending. That's been a double-edged sword, however, exploding the national debt, inflation, and interest rates.

But economic confidence is Obama-like negative, and has been since it crashed during the pandemic in April 2020 to -32 from its highest level in 20 years under Trump just two months before, in February 2020 at +41.

Trump didn't shut down the economy in 2020, but governors sure did. It was a stark demonstration of just how quickly the wrong leadership can make everything go to hell in a hand basket overnight. The people today aren't wrong to lack confidence.

Ominously for incumbent VP Harris, Gallup thinks 2024 is most analogous to 1992, when Americans booted the incumbent Bush 41 even though the recession had ended more than a year before in 1991.

Majority of Americans Feel Worse Off Than Four Years Ago

WASHINGTON, D.C. -- More than half of Americans (52%) say they and their family are worse off today than they were four years ago, while 39% say they are better off and 8% volunteer that they are about the same. The 2024 response is most similar to 1992 among presidential election years in which Gallup has asked the question. ...

With a majority of Americans feeling they are not better off than four years ago, economic confidence remaining low, and less than half of Americans saying now is a good time to find a quality job, the economy will be an important consideration at the ballot box this year. As inflation persists and economic concerns dominate voters' minds, the upcoming election may hinge on which candidate can best address these pressing issues.

 

We still live in a world of very diminished economic growth since The Great Recession

Real GDP 2007-2023, 16 years, compound annual growth rate: 1.905%.

All the other years, 1929-2007: 3.448%.

We're behind that by almost 45%.

Compare the 16 years of The Great Depression and WWII, 1929-1945: 4.743%.

Or the 16 years prior to The Great Recession, 1991-2007: 3.253%.

This is bad, but you knew that.

Why it feels like a depression

 Because average annual real GDP growth rates are so low.

Between 1929 and 1945, average annual real GDP grew at a compound annual rate of 4.74%.

Between 2007 and 2023, average annual real GDP grew at a compound annual rate of 1.82%, which is under-performing the sixteen year Great Depression and WWII era rate by almost 62%.

Up until 2007, the country averaged 3.44% from 1929. 

Something remains rotten in Denmark.

Gold remains far more overvalued than US stocks, which is saying a lot

Gold is at least 167% overvalued relative to inflation since 1913. $600ish gold makes sense. $1600 gold does not, let alone $2067, the 2020 high.

Meanwhile stocks are off-the-charts overvalued, about 93% relative to the post-Great Depression median valuation of 81 through 2019, as of the latest GDP figures from late May.

Speculation in both gold and stocks, not to mention a host of other things, has been driven by Federal Reserve interest rate suppression since 2001.

How long elevated gold and stock prices can persist in the new higher interest rate environment is anyone's guess.

The Fed Funds rate still averaged a low 1.69% in 2022, so it's still early innings.

.

May 25, 2023

Ben Bernanke wins Nobel Prize in Economics for 495 bank failures under his leadership as Federal Reserve Chair Feb 2006-Feb 2014

 

 

The 495 failures were a huge improvement over the 9,000 bank failures during The Great Depression of the 1930s, his specialty of study in the 1980s, experts said under their breath.

Real return since August 2000 has been Great Depression-like

 

The biggest investing lie of our times: "A host of factors ... has made U.S. equities an attractive place to park money and earn nice returns"

 CNBC, here.

S&P 500, average real return per annum, dividends fully reinvested:

August 2000 through April 2022, 21 years, 8 months . . . 4.6%;

The 21 years, 8 months previous to that, December 1978 through August 2000 . . . 12.35%. 

At 4.6% it takes about 15.5 years to double your money, at 12.35% just under 6 years, which means under current circumstances you haven't yet doubled your money twice, whereas previously you would have doubled it 3.6 times.

The stellar real returns to the August 2000 top have been cut down since then from 12.35% to 8.41%. How long will it be before they are cut back to 6.44%, the long term real return from January 1871 to December 1978?

The odds are not very long.

Those stellar returns of the second half of the 20th century are an artifact of The Great Depression lows. To achieve them again will require another one.

Safety check, Vern.

You fools who won't have enough electricity for air conditioning this summer have only yourselves to blame

From the story:

Peak temperatures are forecast to reach 115 degrees Fahrenheit (46°C) in interior California through the week, according to the state's electric grid operator, which warned the biggest supply deficit could occur on Thursday after the sun goes down and solar power is no longer available. ...

On Wednesday, solar power was providing about 30% of California ISO's supply, and the grid warned that it would be unlikely to be able to rely on additional supplies from other states due to the extreme heat hitting much of the Western United States.

The ISO was currently getting 13% of its power from other states. The ISO has said it expects to have about 50,734 MW of supply available this summer, but some of that comes from solar.

102,000 MW of coal-fired electric capacity was retired from 2010-2019, over 38,000 MW alone in 2012, 2015 and 2018. Another 17,000 MW is scheduled to be retired by 2025. 

The EIA blamed "flat electricity demand growth" during the decade for the retirements.

It should have blamed Obama, under whom real GDP grew at a rate worse than during the Great Depression.

But YOU elected him.

Twice.

 

 

Just because Congress in 1869 stipulated a Supreme Court of nine doesn't mean Trump must appoint anyone

 Trump would be a fool not to make a Supreme Court appointment, of course, and he has done it, but the executive branch is co-equal and doesn't have an obligation to comply with the act of Congress from 150 years ago by appointing a replacement for RBG to make it nine if it doesn't want to make an appointment for prudential or even political reasons.

The executive can say the court costs too much and for that reason not make the appointment. The executive can say the court hears too few cases to require a ninth justice. The executive can say "eight is enough". Marbury v Madison, perhaps the most consequential decision ever, was decided by a Supreme Court 4-0 with a 6-member court (two were sick at the time). There was no magic odd-numbered formula which was required before that decision was made. No one today as a matter of politics views the decision as illegitimate for that reason, nor because the case was decided by too few members.

And FDR certainly is precedent for saying there were prudential reasons for believing the nine member court was inadequate for the historical moment. Just because he lost in this political quest doesn't mean it was illegitimate.

Consider that FDR wanted to pack the court in 1937 through a bill scheming to swell its numbers because the Supreme Court kept thwarting his New Deal legislation in Congress as unconstitutional from 1933. The Great Depression was a dire moment in American history, requiring, in FDR's mind, one attempt after another to alleviate it, no matter how unprecedented.

The other powers that be thought otherwise.

But eventually and fortuitously one justice on the Supreme Court, named Roberts !!! by the way, actually switched sides to favor a New Deal case pleasing to FDR, which ended up having the odd result of taking the wind out of FDR's court-packing sails.

The March 1937 5-4 decision came to be known for this reason as "the switch in time which saved nine". The court showed that it could, in fact, rule New Deal ideas constitutional. That removed the argument for packing the court, by effect if not by intent. The nine member court was adequate after all.

It's an interesting case showing the power of the Supremes, not just to rule, but to maneuver.

The presidential appointment power is a political matter because the president is elected.

But don't kid yourself that the court absolutely eschews politics when rendering its opinions. Though not politically conservative in nature, a March 1937 ruling upholding innovative, New Deal legislation, ended up preserving the traditional character of the Supreme Court reaching back to just after the Civil War. And it persists to this day.

The founders were genius in this respect, recognizing that political forces are inescapable and must be accepted, accounted for, and balanced in order to prevent a lurch into the absolute tyranny of a single one of the branches of government.

The imperative of the moment is the free exercise of politics within the constitutional framework, not tampering with the framework.

Real GDP growth since 2007 lags the Great Depression era by 42% and the post-war by 52%

And Trump thinks this is the greatest economy ever.

Gramps, born in 1926, says this is worse than 2008

Dad will be 94 this year if the coronavirus doesn't get him first.

He's been through a lot, seen it all. Darmouth graduate. Served in the US Navy from World War II to Vietnam, retired as a captain.

He was just a little kid during the Great Depression, didn't really know any better. But he's watched America become a lot better since then, and now it suddenly isn't.

Things may end for Dad the way they began, with Great Depression II.

Long war on terror, coronavirus, economic meltdown.

We've had war, plague and depression before in this country, sometimes in rapid succession. WWI ended with a whimper as the Spanish Flu pandemic killed tens of millions, followed quickly by the depression of 1920. That one was very deep and severe, but ended quickly because the government . . . did nothing.

Free market economies, if left to be free, quickly recover from catastrophes because debt overhangs are allowed to clear through bankruptcy. Bankruptcy is the cure.

But we can't stomach that, same as we haven't been able to say No to our children. Self-esteem and all that.

So, expect the suffering and disorder to continue.

Sad. 

It's official: Economic growth 2007-2019 (full year) is 42.6% worse than during the Great Depression 1929-1941

Growth of US GDP since 2007 underperforms the Great Depression by 42%, the post-war by 51%

Yet the lunatics on TV and radio call this a booming economy.

B E  H A P P Y  I N  Y O U R  W O R K!

Compared to the Great Depression 12 years out from 1929, GDP the last 12 years has been worse

Clueless AP article calls US economy resilient when it's been in the rut they fear is coming since 2007

The compound annual growth rate of real GDP since 2007 has been WORSE than for the same time frame of the Great Depression, yet AP is completely oblivious. The upside is when things really go to hell they'll still be.

As global economic picture dims, solutions seem out of reach:

Barely a year after most of the world’s major countries were enjoying an unusual moment of shared prosperity, the global economy may be at risk of returning to the rut it tumbled into after the financial crisis of 2007-2009. ...

The U.S. economy, now enjoying a record-breaking 10-year expansion, still shows resilience. American consumers, whose spending accounts for 70% of U.S. economic activity, have driven the growth.

Retail sales have risen sharply so far this year, with people shopping online and spending more at restaurants. Their savings rates are also the highest since 2012, which suggests that consumers aren’t necessarily stretching themselves too thin, according to the Commerce Department.

People keep repeating the myth of "no immigration from the 1920s-1960s" because Rush Limbaugh spread it in 2014

Conservatives Don’t Hate Immigrants!:

Every time I tell people that there was no immigration in this country for over 40 years, from the 1920s to the 1960s, seventies, they’re shocked. You’d be amazed at the number of people that do not know we totally closed the borders after the wave of European immigration in the 1920s. And we did it for one reason. That mass arrival of immigrants needed to be assimilated.

The truth is between 1920 and 1965 inclusive we let in 10.1 million, 4.5 million of which came in between 1920 and 1930. It was the Great Depression and World War II which brought immigration down to a trickle. There were no jobs for the people already here in the 1930s for cying out loud, and we didn't want any Nazty Spies comin' in in 1940 either.

You can examine the data for yourself here:

Legal Immigration to the United States, 1820-Present

Jeffrey Snider: The last 11 years of real GDP worse overall than the Great Depression

 Told ya.

Are the Great Depression and the Last 11 Years Comparable?

In terms of modern calculation of real Gross Domestic Product, the last eleven years in the United States have been worse overall than the Great Depression. 

 

Growth of GDP in the last eleven years is now officially worse than in the Great Depression