So, did the nauseating last few months of 2018 signal the end of the secular bull market?
Or is the rebound that kicked-off 2019 a sign that the uptrend is still intact? Or it is just a dead-cat bounce?
Lance Roberts, chief investment strategist and chief editor of Real Investment Advice, returns to the podcast with fresh data that suggests the bear market that emerged late last year is still in play.
Of greater concern to him, though, is where things are headed from here:
When we get to the end of 2019 and we actually get estimates to where earnings should be by the end of 2019, the entire benefit of the tax cut will be erased because of the decline trend in earnings. So despite the fact that the tax cut in December of 2017 was touted as one of the greatest things for corporations ever -- it was supposed to result in a massive boost to earnings -- but ever since then, earnings have been on the decline. That's why the market didn't even respond last year to these tax cuts. Because, at the end of the day, we're not creating more revenue at the top line. Instead, we're eroding bottom line profitability.
And here’s another bit of data for you. Corporate profits, as reported by NIPA, by the government agency that tracks corporate profits, profits before tax have not grown in eight years. They’re at the same level currently (as of the end of last quarter) as they were eight years ago. Only corporate profits after tax have reached a new record. And that only occurred in the last quarter of last year.
This tells a very important story: tthe revenue growth at the top line of corporations has only grown by about 45-50% since 2009 on a cumulative basis. That’s not annual; that’s the cumulative total. But yet, corporate profits at the bottom line (i.e. after tax), because of all the account gimmickry and jiggery that goes on, has exploded by over 350%.
So let’s take a look at what happens at the top line. Profits before taxes has not grown in eight years. That’s in line with what you would expect from frevenue growth. Because of expenses, everything else in business is drawing basically at the rate of inflation, the rate of employment, et cetera, so we’re getting some deterioration there in terms of that. But if we have very weak revenue growth, it’s not surprising that bottom line corporate profitability hasn’t grown before we strip out the tax manipulation.
Which is why stocks are expensive across the board. Basically, on every measure that you look at, with the exception of free cashflow, they're expensive. They're running about two times price to sales, some of the highest levels in history for S&P stocks. And with price to earnings valuations, even given the recent end of 2018 correction, we're still trading on a ratio of 28x earnings. That's going to get more expensive as we move into this year, because earnings are going to deteriorate further.
When valuations truly contract, we're going to be looking at somewhere between 10 to 12x earnings on stocks in the S&P. That'll be your time to buy it. But that will require a 50-60% decline in the S&P from today's levels.
Click the play button below to listen to Chris' interview with Lance Roberts (53m:21s).
Lance covered a lot of good data, and I’d like to toss in some more here.
Let’s begin with the ever popular narrative that the US has enjoyed strong employment growth over the past year.
+311,000 at the last report for December closing out a great year with 2.46 million more people working than at the beginning of 2018.
So far so good, right?
But wait! It gets even better than that!
Average wages grew at a very tidy +2.9% for the year, climbing from $26.71/hr all the way to $27.48/hr.
So, with 2.46 million more people working, and average wages a solid 2.9% higher across the entire universe of employed people (all 150,000,000 of them), we should be seeing a very nice bump to federal income taxes, rights?
At a minimum we’d expect federal tax receipts to be 3% higher, but as much as 4% higher (to get it more accurate we’d have to download the entire data series and multiply each month by each month, then adjust for hours worked…but the answer is somewhere between 3 and 4 percent)
However, it bears repeating, the BLS employment numbers are heavily modeled, sampled, and adjusted and are therefore among the least trustworthy numbers that the US government puts out.
Much more reliable in my mind are the tax receipts. They simply come into the US Treasury and are added up. They are not sampled, modeled or seasonaly adjusted. You can compare them, apples to apples, across months and time periods. One column of numbers against another.
Here’s what those are saying: [Note: This is a two-axis presentation, with corporate taxes on the right scale, and wage witholding on the left. Can be confusing at first glance.]
This chart (hat tip @DonDraperClone) tells us that corporate tax receipts are down -17% yr/yr (no surprise there due to the massive tax cut) but also that individual wage withholding is down -3% yr/yr.
Oops!
Somebody has the story very wrong. If forced to pick a side, I will always go with tax receipts over BLS gobbledy-gook.
Always.
…just keep re-jiggering rules and regs to allow corporations/the elite to keep accruing more and more (and keep the “economic boom [for the elite and well connected]”) going another five or ten years.
After all, at the Federal level they just re-jiggered the rules regarding budget line items in such a way as to allow things to be hidden and/or moved around (therefore preventing audits and making it impossible to know where money is really going)… But nearly nobody noticed because Covington Kids Hate Injuns. Oh…wait…retract that. (What really gets me is after the attacks [and death threats and doxxing], and then the retractions/apologies, now we have the third wave: folks on the left penning op/eds 'splaining how even though the news stories were wrong, even so deep down we can tell those kids were racists and that smirk is genocide trying to wear a smile. Thank all that is holy that I was not a teenager in this current moment. They would’ve fed me to hyenas, or piranhas, or something…[and I was mostly a pretty good kid, just dumb…like kids are]…)
So – I’m no expert, but… – aren’t there a host of rules/regs they can noodle with (while everybody’s distracted by another mass shooting or maybe some schoolkids acting out (or not acting out)…net effect of which is they move the goalposts on the whole illusion and buy themselves another 5 or 10 years? I mean, the whole FASB thing after the GFC worked out pretty sweet (for the well-connected/elite). And that was basically saying, ok, forget all those dumb rules, just make sh!t up and everything will be cool. So – what’s the next supporting column of transparency/rationality/order that they can just hollow out in the name of spinning a few more plates for a few more years?
In spite of all this, while I am a little salty about the chain of events (since 9/11, but esp since 2008 [lost my life savings – and if you need a reason to walk scared, check this out: I now have Life Savings again! Time for TPTB to clean out my account! ), I’m pretty sanguine about it all. I do believe we revert eventually to the mean, and the charlatans and predators will all get their day.
People – regular-type people – are catching on. And they have justice on their mind.
VIVA – Sager
....just keep re-jiggering rules and regs to allow corporations/the elite to keep accruing more and more (and keep the "economic boom [for the elite and well connected]") going another five or ten years.
Do you have a link to more information on that? I was just trying to find it, but have classes for the next five hours. I don’t doubt you, I just need the evidence as a really nice bullet in a discussion I’m having with some adherents to the Church of Hopium…it’s just the kind of evidence I need!
The case for no market correction…
A market correctionn would kill pensions which are already on the brink. No pensionz equals rioting in the streets by the masses.
High inflation allows the government to tax the gains. With deflation the government receives minimal tax revenues.
I don’t know the why and how, but TPTB can pretty much do whatever it takes to make sure the “markets” stay elevated, and that deflation does not occur.
....just keep re-jiggering rules and regs to allow corporations/the elite to keep accruing more and more (and keep the "economic boom [for the elite and well connected]") going another five or ten years.
Do you have a link to more information on that? I was just trying to find it, but have classes for the next five hours. I don’t doubt you, I just need the evidence as a really nice bullet in a discussion I’m having with some adherents to the Church of Hopium…it’s just the kind of evidence I need!
Hey Snydeman and Sager
Thanks for the link to Matt Taibbi’s article, Sager! I love his work, and hadn’t seen that.
Catherine Austin Fitts also talks about the changes in the guidance regulating federal financial statements in an interview with Greg Hunter on USAWatchDog.com, if you’re interested: “Secret Money for Private Armies – Catherine Austin Fitts”.
"...What we are watching . . . is essentially a coup. We had a financial coup, and now we are watching a legal coup to consolidate that financial coup. I would keep my eye on the fundamental governance structure of the U.S. The important thing is not what they do. The important thing is who controls no matter what they do. Now, we have created a mechanism for them to control entirely in secret and create policies entirely in secret, including around the back of a U.S. President. . . . It’s pirating by the ‘just do it’ method. I said to someone the other day, what is it about secret money for secret private armies that you don ‘t understand?”
$21 trillion in “missing money” at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue. The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit. Fitts says, “This is basically an open running bailout. Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it. There is no oversight whatsoever. You can’t even know who is doing it. I’m telling you they just took the United States government, they just changed the governance model by accounting policy to a fascist government. If you are an investor, you don’t know who owns those assets, and there is no evidence that you do. . . . If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities.”
In closing, Fitts says, “We cannot sit around and passively depend on a guy we elected President. The President cannot fix this. We need to fix this. . . . This is Main Street versus Wall Street. This is honest books versus dirty books. If you want the United States in 10 years to resemble anything what it looked like 20 years ago, you are going to have to do it, and there is no one else who can do it. You have to first get the intelligence to know what is happening.”" [bold mine]
re: Fitts
Right, Trump (or any sitting president) can’t really fix the problem. JFK started down that path when it was not nearly so entrenched, and well, you know…
It is indeed “Main Street versus Wall Street” (and the big banks). But go ahead and try to explain to people … (1) how the stock market is a lawless, parasitic system designed to funnel money upward; (2) that the US government took the people’s power to create money and gave it to the banks 100+ years ago, allowing the banks to create a legalized ponzi scheme than has been (and will be) used as a weapon against the middle class; (3) that elections are now a theatrical performance whose goal is to reinforce the fiction that we self-govern. Bon chance.
So, while I like CAF a LOT, her assertion that the relatively tiny number of people who actual understand the problem – let’s include all PP’ers in that – could take meaningful action on problems 1, 2 and 3 above, well, that seems like a dubious prospect.
I’m not trying to be a negative nellie here, but I think it’s really important that we understand just how difficult the problem is. If we can’t expand the number of people who understand that the left-right brawls covered by the MSM are just distractions, that the real enemies are those who pull the levers of predatory capitalism, the security state, and the war machine, then we will never reach the critical mass necessary to strip control from TPTB. I do my best to preach to those outside the choir, but boy, are people stuck in their red and blue domains.
Suppose, we can’t win, because of the math; and the math guarantees a slide into oblivion.
Well then, how would you bring attention to the slide, and help people downsize anyways?
I think you need to arrango a better source of interest, funding, and even harness greed better than what is out there. So then I ask, what is more viral then malinvested stocks that are booming before a huge bust?
Aside from bitcoin, I mean. Or gold.
No, not silver, either.
I mean, it’s the ponzi scheme. Now, ponzi schemes are illegal (except social security; and BAU; and pension funds). But multi-level marketing isn’t. The reason ponzi schemes are illegal is that the participants by and large are left with nothing of value. With MLM, oh, for example with a wonderful word processor when I was young called PC Write, you’re left with a good piece of software.
So as long the person is substantially getting something of value and that something of value is the main object, then there is no fraud.
So my thought is a business incubator that incubates green/PP industry, grabbing what growth remains from wall street. And it runs with several levels:
Frst, you incorporate. You charter a specific goal for the company.
Early on, ponzi /MLM with EVERYTHING run through the company, and 50% of the take funding the project especially in mid phase, 50% funding the MLM. For this phase, to get in you must contribute work of value to the project. At EVERY stage, you get one share of ownership per person in the business, regardless of how much you contribute; and you get an additional share of “services credit” based on hours donated.
As the ponzi fails to produce the required expertise and funding, then that shifts to the next phase, where you hire or contract what you need with profits from the ponzi.
You work on getting a real product out, one that meets the goal. Maybe it’s a green housing pyramid with gardens around, and most services shared. Maybe it’s a tag-team train line that makes every trip nonstop, one way.
But the important thing is that you tie your shoes. We don’t have to outrun peak prosperity (the lion). we have to outrun the bankers. And they’re fat and heavy, in some ways.
It's already out there. I'd encourage you to seek out your nearest credit union and consider giving them some of your business. Credit unions offer many (most?) of the same financial services that banks do, but you might find that their co-operative governance and community focus are better in tune with your values.
The Seven Co-operative Principles are guidelines by which co-operatives put their values into practice:
Voluntary and Open Membership
Democratic Member Control
Member Economic Participation
Autonomy and Independence
Education, Training and Information
Co-Operation Among Co-Operatives
Concern for Community
Volker was appointed by Carter and promptly started hiking interest rates dramatically. It was one of the two big reasons Carter lost (the other being the Iran hostages).
