Tonight I am posting today’s Santelli and Harris exchange (click on the image at the end of the post). (It is with gratitude that I thank Rick and his wonderful producer Lesley McKeigue for they keep providing me a with a platform to express views that are based on almost 40 of trading experience.) The Santelli Exchange has allowed me to meet and share views with some of the most respected minds in the financial community: Art Cashin, Jim Bianco and the list continues to go on and grow. Thank you my readers for allowing me time to deal in dialectic exchange and be challenged in a constructive method to enhance my knowledge. Remember, it is not validation but dialectic that I strive for in Notes From Underground.
The coming year will challenge all traders and investors as central banks realize that their policies are NOT ROCKET SCIENCE. As the QE programs of the ECB, BOJ and FED are further challenged by the vicissitudes of global politics, 2017 promises to be a year of volatility, which of course provides great opportunities as well as risks. Notes From Underground hopes to bring a clarity to the most pressing issues concerning the global-macro financial markets. Our focus will continue to deal with the UUUUUUUGGGGGGGGGGEEEEEEEEE amount of DEBT weighing on the balance sheets of developed and emerging market governments and corporations. Again, thanks for your indulgences and time.
In the November 17 blog post, “May The Circle Be Unbroken,” reader Pgrommit raised an interesting point. He said, “I guess we shouldn’t be surprised that stagnant wage growth almost never gets mentioned in the corporate-owned media as a reason for the slow growth economy (70%) is consumer spending, then lack of wage growth is a much bigger reason than corp tax rates or regulation. Especially so since profits–both nominal and as a % of GDP–have gotten higher than ever in this expansion.”
My response: Now factor in the growth in personal debt.T he argument that correctly laid out the long duration of the global financial crisis (hate this term) was Richard Koo’s balance sheet recession. The deleveraging of household balance sheets was what was going to keep demand stagnant. But as you certainly bring to the fore. If wages are stagnant and consumers are forced to borrow to consume then the day of repaying is always at hand. In economic terms, bringing forward demand keeps capital investment tepid as entrepreneurs are fearful of extending capital when the next crisis is around the corner.
This is what Bernard Connolly and others have written about for years: INTERTEMPORAL DISLOCATION. But your point is well taken and in my opinion weighs on Yellen’s desires for running hotter for longer. Nothing eases debt burdens like a good bout of inflation. Recently, I referred to the FT article about the rapid increase in auto repossessions even as we remain at full-employment.
At the end of today’s Santelli hit, Rick brings up the problem of middle-America wages not being able to keep up with inflation and therefore being a further drag on the economy. Rick and I didn’t finish the point but it is certainly of great importance. There are many analysts raising concerns about 1970s-type stagflation but something we haven’t heard is the term, WAGE-PRICE SPIRAL. The decline in the power of private sector unions–auto, steel,miners etc.–have limited the growth of wages as the threat of jobs leaving for lower-wage countries has capped labor militancy.
Maybe the Trump victory gives a voice to those that unions have previously spoken for–I am not considering the strength of public sector unions for that is a far different situation. But low wages with massive debt overhang may be the solution to Larry Summer’s puzzle of secular stagnation. Thanks and remember the solutions to complex problems are more than 2+2=4.
Click on the image to watch me and Rick reveal my pick for Treasury Secretary