06/14/11 Baltimore, Maryland – For 6 weeks, the Dow has been going down. It should be ready to bounce.
But stock market investors didn’t get a bounce yesterday. They didn’t take a loss either. It was a draw. The Dow closed 1 point higher than on Friday.
As for oil, it was down to $97. And gold lost $13.
Business profits have been near record highs. This is not a good reason to buy stocks. Profits are famously “mean reverting.” That is, they go back to normal pretty fast. Which should mean lower profits in the future.
When profits are high it is usually because labor costs are relatively low. That is the case now. But that’s not good news. In the US, labor’s share of national income is the lowest it has been for almost 100 years. People who own and run corporations enjoy higher earnings. The rich get richer.
But the working stiff doesn’t share the joy. He feels he has been cheated. He just doesn’t know who cheated him. With 25 million people looking for decent jobs, he has no pricing power. He can’t threaten to walk off the job. There are too many people ready to take his place.
So what happens to him? Does he take his losses philosophically? Does he cut back his standard of living…spending less time driving his big SUV and more time reading the classics?
Or does he become bitter…and feel like he has a score to settle?
We have an uncomfortable feeling this morning. It comes from reading before we go to bed. Next to our bed is The Forgotten Soldier, a personal history of war on the Eastern Front in WWII. The author – a private soldier in the Grossdeutschland division – knew nothing of the strategies, logistics, or politics involved. He merely tells us what he saw…what he did…and what he lived through.
What disturbs us more than the events – which were unbelievably shocking and brutal – is the caste of characters. They sound like normal people. But what sensible man would invade Russia – without winter clothing – and let himself get bogged down in a four-year war of hellish slaughter in nightmarish weather? And yet, millions of apparently sensible people did.
The author of The Forgotten Soldier, Guy Sajer, seems like a decent sort. He joined the Wehrmacht willingly, happily and proudly. And he wasn’t even German. He was French. He barely spoke German.
Which just proves our point. People are neither good nor bad, but subject to influence.
In England, CEOs got huge pay increases last year. Their compensation rose 32%, thanks largely to such high profit margins.
We haven’t seen comparable figures for US CEOs but they are probably not too different. Bankers, for example, are partying again, just like it was 2005.
In Britain, as in America, the middle and lower classes got no raises last year. Or the year before. Or the year before. In fact, their real incomes are going down as the cost of living goes up and their wages stagnate.
Who will they blame for that? Will they carefully analyze the situation…and see how their central bankers and politicians misled and betrayed them? Or will they point their fingers at softer, easier targets.
People are always the authors of their own success. Their failures are always written by someone else.
What kind of influences will be felt by the American people…when they realize that they are no longer on top of the world…when they have lost their houses…and their jobs? And the Chinese try to force an austerity program on them!
Yes, dear reader, borrowers may want to spend, but creditors demand austerity. In Europe, the Germans are trying to force the Greeks to cut expenses. And now, America’s major creditor – China – is demanding that the US put its finances in order too.
There are bound to be some feelings of resentment.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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“Caste” of characters. I love it! Bill is nonstop with the puns.
Our situation, on the North-East edge of the American Empire, is not too bad considering the current situation. Private enterprises are still creating jobs in the country overall. Official unemployment rate is trending down. I consider myself lucky to I have a job. My base salary increased by 1% this year. Also, my employer decided to keep its defined benefit pension plan instead of switching to defined contribution like most other private employers. But, in order to have the same benefit at retirement, my yearly contribution will increase by 60%. The cost of everything seems to increase while officials say inflation is under control.
Thanks for your daily reckoning, very enlightening.
Quebec City, Canada
The American people are a bunch of worthless morons suitable only for being the slaves and lackeys of their Chinese masters. Keep on shopping at Wal-mart you white trash fools!
The current U.S.A. population is over 310 million people.
Even on a genius – idiot bell curve, that makes for a whole lot of bright folks.
Even a lot of smart folks who do not shop at Wal-mart.
Wow, CEO bonuses is the best you can come up with? Sad, it started out interesting. Are you under some sort of contract that forced you to phone in this CNN-quality populist crap instead of just skipping it until a good story idea came along?
One wonders what Mr. Smiths real name is and his country of origin?
What we basically have is the US taking China under their wing and feeding them all the US technology and manufacturing while simultaneously dismantling the Home base. Not smart I admit, but thats what happened.
With this in mind its obvious how China got to where they are. It’s important to note they did NOT (Nor in my opinion could not)do this on their own. Up to 30 years ago they were a impoverished failed communistic State.
Just like Hitlers Germany was financed by Western powers so follows China. It appears the PTB are gearing up to make trillions with a new war just as they did with the rise of Hitler.
Unlike China the US did most everything on their own. It didn’t play lapdog to anyone. It has even killed itself without external help.
No, I do not shop Wally World but that doesn’t matter any more. The Master / Subject reversal has already taken place. The Americans just don’t admit it yet…