What’s (Left) in Your Wallet?

Now that the holidays are over and everyone is back to work, let’s talk about the economy.  First, the good news:

• Christmas sales are expected to be up about 5% from last year.  Most retailers (except Apple) are pleased with the results.
• Today’s job numbers (for December jobs added) were stellar, much better than anticipated, and while the unemployment rate ticked up a bit, it’s still historically low, under 4%.
• 2018 showed solid U.S. GDP growth.  This along with the strong holiday sales point to an American economy that is more solid than fluctuating stock markets would suggest. 
• Consumer confidence is still high.

But we’ll get back to the stock market in a moment.  Now, the not-so-good news:

• Interest rates are up, making it more costly to borrow.
• The housing market is slowing down, partly due to those rising interest rates.
• The government is shut down, meaning that there are 800,000 government workers without pay – some still working, others furloughed.
• Bonus: an Executive Order froze all government salary rates for 2019.
• China's soybean imports from the United States plunged to zero in November, thanks to new tariffs.
• We’re still in a trade war.  Tariffs are impacting more than soybeans – cars, appliances, solar installations – many industries are just now feeling the pinch.  There are plant closings, layoffs, and bankruptcies of American institutions like Sears, Rockport, and Remington.
• The U.S. debt is rising.  So is the trade deficit.
• The global economy, while robust in 2017, is slowing, as evidenced by sputtering Germany factories and sluggish Chinese retail sales.  This, along with a strong dollar, is likely to hamper U.S. exports.

And getting back to the stock market – it’s taking a big jump today (based on those December job numbers).  This offsets the previous dip, so that for the year we’ll be just a smidge above where we started.  And, of course, the market has been in decline since October.  For the first time since 2008, stocks finished lower for the year.  It was the worst December since 1931.  Neither 1931 (Great Depression) nor 2008 (Great Recession) were harbingers of “good times ahead.”  So what’s REALLY happening with the market, and with the economy?

It’s the volatility, stupid.  Check out these graphs of the Dow.  It’s like watching wrestling – he’s up, he’s down, he’s up again.  But with BIG swings.  Some might say YUGE, both up and down, though again, the trend now is on the downside. 

This was last Friday, 12/28.  A wild ride that ended just a little lower than where it started.

Here's 2018 up to 12/18.  Peaks and valleys and we end on a BIG down note.

And here's the last five years - Obama's three (all up), and Trump's two (up and down).

To say, “there’s a great deal of volatility here” is putting it mildly.  The stock market is sometimes called a barometer of the economy, but the fact is that most Americans don’t own stocks (most are owned by the richest 10% and foreigners), so those numbers don’t mean squat to the average worker trying to live paycheck to paycheck.  And yet, the market is one of several indicators that show where we are in the economy. 

We know that the “great inequality” between the 1% and “everyone else” is growing.  The rich are getting richer, and the rest of us?  Not so much.  The tax reform act that passed last year sent more money to people who already had more money.  Touted as a “jobs act,” it created few jobs – there were some companies that expanded operations (because demand called for it), but most of the money went to something that until 1982 was illegal – stock buybacks.

In 2018 corporations spent a record $1 trillion buying back shares of their own stock (they’ve been doing this for years – they just went nuts last year).  These massive buybacks only pad the bonuses of corporate executives and wealthy investors, and provide no real benefit to the economy. 

Oh, and they artificially inflate stock values. So the market, which is off about 5% from 2017, could have been much worse off.  And 2017 should have been a good year, because across the globe economies experienced record growth.  The U.S. stock market has actually done worse than most of the developed world in 2017.  As a percent change in dollars, the U.S. has lagged behind the stock indices of France, Germany, Greece, Italy, Spain, Japan, China, India, Singapore, South Korea, Taiwan, Argentina, and Chile.

A year ago, I wrote a few blog posts (here, here, and here) about the tax cuts and last year’s government shutdown (is this an annual affair now, like January White Sales?).  I predicted that things wouldn’t turn out well, and I was right.  Eventually.  Yes, nothing happened right away, but the economy is like a steamship – it’s doesn’t just “turnaround” that quickly.

Personal Full Disclosure:  shortly after that last post on January 20, we unloaded our stock portfolio.  We’ve been “in the market” since the 80s and while I hated to do it, we feared the volatility of the market, not wanted to risk what little nest egg we had built up.  The timing wasn’t perfect to be sure, and there were times when I almost regretted the decision, but now we look smart.

Meanwhile, the interest rate on our HELOC has gone up a full point, while our savings are still mired in rates that would embarrass Ebenezer Scrooge.  Inflation is not that bad.  OK, the reported inflation rate isn’t bad, but the government has changed the way it calculates inflation more than 20 times.  If you’ve purchased meds, food, or tuition, you know what you’re paying now is more than what you paid last year.  This website calculated a “Shadow Inflation Rate” that sounds far more realistic.  And scary.

So what’s in store for the rest of 2019?  Uncertainty.  I don’t mean that I’m not certain what to expect, I mean I expect uncertainty.  That’s going to play havoc with the markets, with planning, with people’s incomes and lives.  It’s going to be a very bumpy ride.

And you haven’t even seen the new tax forms yet, have you?  You’ll shit.