The stock market is surging. The economy is not.

 All eyes are on the stock market. The Dow topped 30,000 last week for the first time in history before slipping back and is on track for its best month since 1987, more than three decades ago. The bull market is powered by good news about Coronavirus vaccines and the prospect of an end to the trade wars, but so far that optimism is not reflected in the greater economy.

COVID-19 is still raging and despite the fact that the election is over, some jurisdictions are enacting new restrictions to combat the winter wave of infections. If you live in California, New Jersey, or even red states like Oklahoma and Texas, you may have been subject to new social distancing guidelines aimed at slowing the spread of Coronavirus over the Thanksgiving holiday.

While your 401k is probably looking really good these days, you may have taken a pay cut or lost hours due to the pandemic. You may also be on the cusp of a layoff as many parts of the economy slow once again. Conversely, you may be one of the many unemployed or underemployed Americans watching the stock market enviously, having already cashed in your retirement accounts to make ends meet.

The viral surge that is spawning these new restrictions is also responsible for economic data that indicates a slowing economy. For example, personal disposable income fell by a whopping $134.8 billion (0.8 percent) while personal expenditures rose by $70.9 billion (0.5 percent) per the Bureau of Economic Analysis‘s report last Wednesday. Similarly, a Department of Labor release from the same day indicated that unemployment filings have risen for the past two weeks. This is the first time since July that unemployment has increased over consecutive weeks. Although unemployment is down from the highs of last spring, the reports indicate that the jobs recovery is losing steam.

The slowing jobs market can be blamed on both the surging virus and the expiration of the CARES Act. Passed in March, many aspects of the COVID relief bill expired in September. The popular Paycheck Protection Program, which provided federal funding of payrolls for companies that did not lay off workers, was one of the first programs to lapse. Many of my friends who work in the airline industry got their furlough notices shortly after and are now being laid off.

Unless Congress acts to pass a new relief bill, there are several other federal programs that will expire at the end of the year, just as more workers are likely to be finding themselves unemployed as seasonal jobs come to an end and the winter virus surge forces more shutdowns. These include:

• An extra $300 added to weekly payments by presidential Executive Order expires Dec. 27
• An extra 13 weeks of unemployment benefits (for a total of 39 weeks) under the CARES Act expires Jan. 1
• Pandemic Unemployment Assistance for people who wouldn’t normally qualify for unemployment benefits expires Dec. 31
• A CDC moratorium on evictions for renters expires Dec. 31
• A federal student loan deferment under the CARES Act and extended by President Trump expires Dec. 31

You may notice that I use the term “relief” instead of “stimulus.” That’s because the CARES Act and any follow-on bill would be designed to prevent an economic crash by providing relief to affected Americans rather than trying to stimulate the economy. For example, if Americans become unemployed due to the COVID crisis and burn through their savings, it may lead to a real estate crisis as they get behind in rent and mortgage payments. If you remember 2008, you remember how a collapsing real estate bubble can cascade throughout the economy.

Further, the middle of a pandemic is not a good time to lose a job that provides your medical insurance. While many COVID patients are asymptomatic, about 15 percent require hospitalization. Patients with health insurance can be faced with bills totaling thousands of dollars. Patients without insurance could face financial disaster. COBRA insurance is available for people who lose their jobs but the cost is often prohibitive.

To be fair, not all of the economic news is bad. Like the stock market, consumer confidence is still high, owing largely to good news about upcoming vaccines.

And therein lies the rub. As I’ve said from the beginning, repairing the economy depends on defeating COVID. We won’t get back to normal until the virus is defeated.

We are getting very close to a victory over the Coronavirus, but it will take several months before a vaccine can be fully deployed. Until that time, we need to maintain social distancing and other mitigations such as staying home when you display symptoms and quarantining if you’ve been exposed.

In order to make that financially possible, many American businesses and citizens are going to need assistance to make it through the winter. The difference in having a relief package and going without may be the difference between the status quo and a much deeper recession with many more failed businesses and unemployed Americans.

Originally published on The First TV

Why Is The Stock Market Increasing While The Economy Contracts?

Alot is going on the economy these days, but one thing that has been fairly consistent, at least since the end of March, is that the stock market has been clawing its way back toward the pre-pandemic highs. With much economic news that is decidedly mixed, why is the stock market doing so well?

Back in February, the Dow Jones Industrial Average was flirting with the $30,000 level. A few short weeks later, the Dow bottomed out 18,591 on March 23. Now, despite the pandemic, the ravaged economy, and racial unrest, the Dow has regained much of that lost ground. Trading has often been turbulent, but the Dow closed yesterday (today is a market holiday) at 25,827, which is only about 12 percent below its high for the year and up 92.39 for the week.

As with many things, there is no single answer for why the stock market is booming while the rest of the economy is hurting. One immediate factor is that this week’s jobs report was better than expected, which encouraged investors.

Job losses in March hit record highs but the return to work has also been historically swift. The June jobs report showed that 4.8 million jobs were created last month, which was much better than expected. The unemployment rate fell by 2.2 points to 11.1 percent. Despite the fact that the unemployment rate is 7.6 points higher than February, the June numbers are an improvement over the depths of March and April.

There are other factors at work as well. Not all companies are equally vulnerable to the pandemic and the associated economic decline. Travel companies, such as hotels and airlines, have suffered while other types of companies are better able to weather the storm. As with other areas of life, size also matters in pandemic economics.

“Large companies have fallen much less than smaller companies. It is likely that as a result of this crisis the strong will get stronger … and so the stock market is reflecting that in its relative valuation,” Peter Orszag, Financial Advisory CEO at Lazard and former OMB director under Obama, told CNBC in May.

Others point to the fact that the computers that do much of the trading are not as emotional as their human counterparts. News reports of rioting across the country can make individual investors tuck tail but not the algorithms at the big trading houses.

“The market always seems heartless, without any emotion, without caring, without empathy. But that’s the nature of the market,” Quincy Krosby, chief market strategist at Prudential Financial, said on CNBC. “The algorithms almost certainly have no shred of empathy. They’re not supposed to.”

Still, sometimes news does trigger a run on the markets. Often, however, this is economic news such as jobs reports or geopolitical events such as attacks on oil facilities in the Middle East.

An additional factor this year was the government’s economic impact payments. These “stimulus checks” started going out in April as part of the CARES Act. With few places open to spend the money, many consumers put the windfall into the stock market.

An analysis of bank transfers in March and April by software and data company Envestnet Yodlee found that stock trading ranked third behind increasing savings and cash withdrawals as a use for the government funds. The analysis, which was reported in CNBC, found that the government payments increased spending by 81 percent and that trading stocks, which include contributions to 401k and IRA plans, was among the most common uses for the funds at nearly every income level.

One effect of pouring so much money into the stock market would be increased demand. And, as any ECON 101 student can tell you, when demand increases, so do prices.

Even though the stock market has proven resilient so far, there are warning signs. Much economic data, such as the June jobs report, is backward-looking. Even though jobs were created in May and June as much of the country reopened, the report does not reflect the potential layoffs that may be occurring as I write this due to the resurgence of the virus in many areas around the country.

The pandemic is not over yet. Coronavirus will not cease to affect the economy until either the disease runs its course or a viable treatment and/or vaccine is developed. As a result of COVID flare-ups, there will be economic ups and downs for the foreseeable future, but, over the long term, the stock market has proven to be a good investment. That is most likely true in 2020 as well.

Originally published on The Resurgent

Erratic Trump Drives Erratic Markets

Once a bright spot of the Trump presidency, the stock market is continuing in an extended rout that began earlier this year after reaching a high in early October. Treasury Secretary Steven Mnuchin attempted to shore up the market with a phone call to bank executives over the weekend, but federal reassurances did little to calm jittery investors in trading on Monday.

Secretary Mnuchin announced in a tweet Sunday night that he had spoken with the CEOs of America’s six largest banks: Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo. In an attempt to reassure investors that may have had the opposite effect, a Treasury statement attached to the tweet said that the “CEOs confirmed that they have ample liquidity available for lending” and that none “have experienced any clearance or margin issues and that markets continue to function properly.”

Per the statement, Mnuchin said, “We continue to see strong economic growth in the US economy with robust activity from consumers and business. With the government shutdown, Treasury will have critical employees to maintain its core operations.”

While the US economy seems to be working well, the same cannot be said of the US government. Nonessential government services are closed in a shutdown that may last well into the new year because the two parties cannot agree on how much to increase spending for the wall. The president’s unilaterally declared trade war is adding unnecessary costs to American business and consumer spending. The world watches as many of the most experienced and stable members of the Trump Administration exit the White House. In a number of cases, the departures are explicitly tied to President Trump’s capricious leadership.

President Trump sees the situation differently. In a tweet, the president said, “The only problem our economy has is the Fed.” Trump argued that the Fed does not understand “necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders.”

“The Fed is like a powerful golfer who can’t score because he has no touch,” the president added, “he can’t putt!”

https://twitter.com/realDonaldTrump/status/1077231267559755776

While it’s true that the Fed has been raising interest rates this year, it’s also true that the move was long overdue. The Fed kept rates near zero during the apostle-recession years of the Obama Administration, which penalized savers and investors. Increases to interest rates now are a sign that the Federal Reserve views the economy as healthy.

Is it any wonder that investors are nervous?

With Monday’s close, the S&P 500 followed the NASDAQ into official bear market territory. The half-day of holiday trading left the S&P 2.7 percent lower for the day at 2,351. This is more than 20 percent lower than its previous intraday peak and defines the onset of a bear market. The Dow Jones Industrial Average fell more than 650 points, losing 2.9 percent of its value, but technically remained clear of bear status. Today’s session was the worst-ever Christmas Eve for the Dow.

While many fundamentals of the US economy remain strong, President Trump and Secretary Mnuchin are missing the point. Investors are concerned precisely because the Trump economic policy includes massive taxes on trade in the form of tariffs and trade wars, because the government is stalemated and incapable of solving even simple problems, and because President Trump’s style of governance thrives on chaos and instability, the very things that markets abhor.

In fact, rumors are beginning to appear that Mr. Trump will attempt to force the removal of his latest whipping boy, Federal Reserve Chairman Jerome Powell. It is Donald Trump and his lack of coherent policy that is driving markets lower, not some concern about bank liquidity.

“Until this weekend, markets were not that concerned about liquidity or clearance issues,” WinThin, global head of currency strategy at Brown Brothers Harriman told the Financial Times. “At best, Mnuchin made a rookie policy mistake in trying to reassure markets; at worst, Mnuchin knows something that the markets don’t.”

The bottom line is that the Trump Administration cannot protect the markets from the president. Trump’s erratic behavior is translating into erratic markets. With two years to go in President Trump’s term and the senior members of the White House daycare staff hitting the exits, hopes for change seem far away.

The best gifts that Donald Trump could give to the nation this Christmas to end the trade wars, fund the government, and stay off Twitter. Unfortunately, the likelihood of these events is about the same as having Santa rappel down the White House chimney tonight.

  

Originally published on The Resurgent

Are Conservatives Tired of Winning Yet?

As a candidate, Donald Trump promised Republicans that “We are going to win so much that you may even get tired of winning.” Over the past year, I’ve noticed that the president’s supporters and conservative critics don’t seem to share the same definition of “winning.”

A few times recently the different views of winning have come to the surface. When Donald Trump tweeted, “Why would Kim Jong-un insult me by calling me ‘old,’ when I would NEVER call him ‘short and fat?’ Oh well, I try so hard to be his friend - and maybe someday that will happen,” Trump supporters erupted in cheers and celebrations on social media. Several lists of Trump’s accomplishments making their way around the internet, such as this one on Conservapedia, point out the areas where Trump supporters believe he is winning.

From my analysis, President Trump’s accomplishments seem to fall into three main categories. First is the appointments of conservative jurists to positions throughout the judiciary. Second, Trump has used his executive authority to enact a number of promised reforms. Finally, Donald Trump uses his “bully pulpit” to fight back. The duration and effect of these accomplishments varies wildly.

In my view, President Trump’s most important and – so far – only lasting accomplishment has been his effect on the federal judiciary. The appointment of Neal Gorsuch to the Supreme Court is only the tip of the iceberg. Working with Majority Leader Mitch McConnell, who many Trump supporters view as an establishment foe, Trump had appointed 44 federal judges and had eight confirmed by August. These conservative judges will have a lasting effect on the judicial branch.

The same cannot be said of Trump’s executive actions. Many of President Trump’s executive actions overturn President Obama’s executive actions. A successor could erase President Trump’s executive legacy just as easily.

The quality of President Trump’s executive actions varies as well. His executive actions range from the excellent, such as cutting bureaucratic regulations and reinstating the Mexico City policy to ban federal funding for abortions in other countries, to the ineffective, such as his travel bans that would likely have no effect on fighting terrorism.

Some of Trump’s executive actions, though they fulfill campaign promises and are applauded by his supporters, are actually harmful to the country. In one of his first acts as president, Trump withdrew from the Trans Pacific Partnership. The lack of American participation did not kill the trade deal, however. Other parties to the treaty are continuing to move forward on the agreement. If the deal goes forward without the United States, it will be American businesses, workers and consumers who lose.

The third category of Trump accomplishments is the most meaningless and illusory. Trump supporters love his snarky tweets and insults. They like the fact that he fights back and consider this an accomplishment. Essentially, Trump’s tweets and insults make Republicans feel good about themselves.

The problem is that Trump has the opposite effect on the rest of the country. An ABC News poll found that 70 percent of the public thinks that Trump does not act presidential and 68 percent don’t see him as a positive role model. The president’s behavior is now directly linked to electoral losses in which voters say that they are voting for Democrats specifically because they oppose Donald Trump.

Another commonly cited accomplishment is the surging stock market. While stocks have hit record highs under Trump, they did the same under Obama. In fact, a look at the stock market over the past 10 years shows that the market has been climbing since the end of the Great Recession in 2009. Supporters have difficulty pointing to any specific Trump policy change that could explain the surging market since Republicans have scored so few victories on fiscal and economic policy.

On the other hand, my definition of “winning” relies heavily on legislative victories that would be difficult for Democrats to reverse. As the Trump Administration prepares to close out its first year and enter a midterm election year, it has not scored a single legislative victory.

The repeal or reform of Obamacare would have been a major legislative victory since Republicans had been campaigning against the federal health law since 2010. Donald Trump campaigned against Obamacare as well, but when the chips were down, the president’s erratic behavior and attacks on Republican senators almost certainly contributed to the reform effort’s demise.

Likewise, Trump began the tax reform effort with a war against Sen. Bob Corker (R-Tenn.), a member of the Senate budget committee. Trump insisted that, in contrast with conservative fiscal doctrine, that the tax reform not lower the rates of the wealthiest taxpayers. The top 20 percent of taxpayers pay 95 percent of taxes per the Office of Management and Budget, but taxpayers in the top bracket won’t get a lower rate, if tax reform actually becomes law, thanks to President Trump.

While Trump supporters may argue that the president has accomplished more than any president except FDR, most Americans understand how little has been done in the past year. Without the passage of a single piece of legislation that is part of the Trump agenda, Republicans seeking reelection have few accomplishments to run on. As a result, many Republicans are deciding that 2018 is a good time to retire.   

Donald Trump has not ushered in an era in which conservatives have grown tired of winning. In fact, winning has been in short supply over the past year. What President Trump has lacked in winning, he has more than made up for in whining, but that makes a poor substitute.

Originally published on The Resurgent