Monday, January 13, 2020 9:50 AM
Subject: Ross Rant
Not only does the stock market continue to new record highs, but dividends have increased materially, and now on average they yield 1.8%, about the same as a 10 year Treasury. Clearly some stocks pay nothing and some pay a lot more, but this is an average. So if you are looking for some yield, there are very solid companies that pay nice dividends, and give you growth over time. While a stock is not a Treasury in terms of risk, it is now clear that, over time, a quality stock will recoup losses if any, and increase that dividend. The ten year remains under 2%, and may remain there for several more months while companies may increase dividends once year end results are in.
The value of the stock market has increased $12.8 trillion in three years. Apple was a largest contributor to that number, along with the other big tech names. Tech is likely to continue to be a major factor in stock market performance. My view is tech is just getting started, and the growth of many companies in that area has just begun. The advances in AI are changing everything in our lives, and a variety of companies are very active in providing devices and equipment that will be required by business and individuals for years to come. We are in the early stages of a new industrial revolution.
The military is making huge use of AI. All of these users together are going to be spending tens of billions over the next few years on AI driven devices, and weapons. This creates an enormous wealth effect through stock market growth, which helps drive consumer spending, but more importantly, it increases wages and 401K and IRA values, and so increases family net worth materially. Anyone who owns stocks directly, or in a 401K, or IRA, has had a material increase in their potential retirement nest egg.
This matters a lot in helping to solve the issue of what will happen to all the baby boomers when they retire. Will they have enough to live on now that they are living longer. Obviously it depends on how much they have invested, and was it invested well in equities, but $12.8 trillion is an enormous number. Add on materially increased home values, and the retirement problem is not so big as feared a few years ago. Since the election, the Dow and S& P are up 50% and Nasdaq is up 77%. If the markets remain just around where they are, Trump gets a big benefit from the increased wealth effect.
The bottom 50% of workers have had a 47% increase in their net worth over three years. That is huge after ten years of negative and stagnant family net worth. The bottom 10% have had a 5.9% increase in wages under Trump vs 2.4% under Obama.
That is very big at the bottom end of the scale. Middle class wages rose 3.2% vs 2.2 % under Obama. Under Trump wages for 20-24 year-olds have risen 4.4%, and 4.8% for 25-34 year-olds.
The poverty rate for blacks and Hispanics is the lowest on record. 40 million people were lifted off the entitlement rolls since 2016, and 9.5 million fewer are on food stamps. It is why “it is the economy stupid” matters in November.
And the Dems want you to vote them back into power to “fix the economy”. Tens of millions who had no hope are now working full time, and having self-respect and a culture change for the first time in their lives. It is why maybe 30% of blacks will vote for Trump. Despite what Budaboy, Pocahontas and others say, wages are materially out pacing inflation, so for low income workers, their real wages are rising substantially for the fist time in over ten years.
The Dems are simply lying about people falling behind. They are, in fact, getting ahead like never before. The Ginni coefficient, which measure inequality is actually shrinking for the first time in decades as more people are now middle class and upper middle class.
One other very material benefit of the higher stock prices is, the cost of capital for companies has dropped materially as stock prices rise. They are able to raise equity capital at high PE’s which translates into low cost of capital, and then higher return on investment when they put that new capital to work in new investments in plant and equipment. The returns are further enhanced by the ultra-low interest rates. This is one key to push capital investment by business as 2020 goes forward and CEO’s and CFO’s realize we are not having a recession, and they need to invest again.
The new jobs report has some very good news despite the lower than expected jobs number. First the wages number is negatively impacted by timing of the survey. It was done on the 12th instead of payday of the 15th and that can skew the results of the wage increases number.
What is important is U6, the real measure of unemployment. It is down to a record low of 6.7%, a low number never before achieved. Asian unemployment is only 2.5%, while blacks are at 5.9%, still near a historic low. Although manufacturing lost 12,000 jobs, it is not clear how much is due to Boeing, and how much due to technology replacing humans. Manufacturing is now a small part of the economy, 12%, so the negative impact is not very material. There are now 7.3 million open jobs, which is over 1 million more that there are workers to fill them. This will hopefully pull more still long term unemployed and blacks into the work force.
The lack of workers continues to be a big drag on the job growth numbers. If the economy continues to grow as it is, then hopefully many of these people will take jobs which will help mitigate some of the drug use and other social problems, especially for blacks, and former low level criminals.
The problem is we are now left with the dregs and non-skilled, so it is essential that companies invest in training programs and do not rely on government to do that, since the government training programs, of which there are 81, have been a miserable failure. So long as the economy continues to create over around 100,000 jobs per month, the unemployment rate will remain at or below 3.5%.
For the first time in 10 years women outnumber men in the workforce. This is very good as it suggests a lot of single mothers are now working in full time jobs thereby improving life for these families. It also has a major culture shift to work, and off entitlements.
In case you wonder if there is capital for investment in new ventures, it is estimated that venture funds are sitting on $276 Billion of dry powder. That is a lot of funding for new and young companies. The issue is to be able to find valid investments that have a real business plan, and not the next We Work or Uber which do not have viable business models. With that amount of capital to invest, young people are incented to try to start new businesses. That is where the growth will come from.
US economic growth will surprise to the upside in 2020. Capex will increase by Q3. Consumer spend will continue strong, and hiring will remain strong. It is going to be another good year.
US economic growth will surprise to the upside in 2020. Capex will increase by Q3 or sooner. Consumer spend will continue strong, and hiring will remain strong. It is going to be another good year. Equities is the place to be.
ETF’s have become a major factor in the stock market. The problem from my perspective is only the huge ETF’s are able to make money for the managers, and that means they have to pool giant funds. When you create giant funds you need to find enough places to invest the cash, so they become the market, as they need to cover the whole field in order to put all that cash to work. So like every other type of fund over time, it becomes very hard to beat themselves as they became the market. It is why I mostly invest in individual stocks except for QQQ which is heavily tech weighted. I would have done much better had I put that cash into the individual FANG stocks instead, especially Apple and Alphabet.
I continue to be appalled by the Dem and press reaction to killing Soleimani, and the head of the Iraqi militia. They are obsessed with what is the definition of imminent, blaming Trump for the plane shoot down in some weird logic, and claiming this is war.
The Iranian spokesman has even adopted word for word the Dem claim that the shootdown is our fault. Reality is what we are now seeing. Iran has done its propaganda thing with their missile attack, and has seemingly backed off for now, and so have the militias.
We killed the head of the Iraq militia, and they got the message. Trump will wipe you out if you do more bad things, and now that threat is very credible. In addition, the plane downing has put them on the defensive with the rest of the world and their own people. It was one thing for people to question Vietnam or the Iraq invasion, but killing the world’s leading terror master is very different.
How can they question Trump’s motive and strategy on this? The press has been reporting that the people of Iran and Iraq stopped protesting against their governments due to the killing of Soleimani. The facts are the exact opposite. As of this weekend, as a direct result of the plane shoot down and the killing of Soleimani, the protestors in both countries are back on the streets demanding new regimes and celebrating the death of Soleimani.
In Iran they are now chanting death to the regime louder than before. The universities are in revolt. Experts say this time is different, and that the regime is in trouble as never before. Iran arrested the UK ambassador. A flagrant violation of international law and a sign of stupidity and desperation. It will be the case that the killing of Soleimani will be the inflection point.
The exact opposite from what the press has reported and Dems have disgracefully claimed. What is the Dem response to the new Iranian popular protests- impeach Trump, instead of we support the protestors. They went all on fire over Khashoggi, but crickets on Iran protestors getting shot, or the assignation of the Iraqi journalist this weekend who was no different than Khashoggi. I am sure they figure if they support the protestors, it will be construed as support for Trump killing Soleimani, so they do nothing but attack Trump. This is sick.
The revolution in Iran will not happen quickly, but this time the US is really squeezing their economy to the extreme, and that will make life in Iran very tough which will encourage more protests. In addition, this time Trump is loudly supporting the protestors as opposed to Obama who ignored them so he could do JCPOA. It is different now. The economic squeeze and the rising protests will combine to make it harder for the regime to fund and support the proxies and more terrorism.
If things stay quiet between Iran and the US for a few weeks, and the protests continue, the press and Dems are going to have a hard time explaining why killing Soleimani was a bad thing leading to war. The press is still all hung up on imminent. They got it all backwards and showed that they are for appeasement, which inevitably leads to more dead Americans, and that they do not understand peace through strength.
We finally have a president who is willing to prove to the bad guys it is bad policy to kill Americans. This is the end of the old liberal policies of the past 70 years, and begins a new era of history. That is why the press and left, and the deep state at State, are so up in arms against Trump. He just blew away everything they have believed since WWII.
No way to know where all this goes from here, but it is possible that this might eventually be the end of Iranian hegemony in the region. Protests are now happening in Iraq, Lebanon, and it may not be long before the Houthis decide they need to do a deal with the Saudis. Russia might push Iran out of Syria if Putin sees an opening. The situation in the region is now in upheaval and getting rid of Soleimani was key to creation of the opportunity to have things really change. Are you paying attention Kim! It is all different in US foreign policy now.
The Pentagon has sent a loud message to Iran. We are watching everything you do and so we knew with plenty of time when you were going to fire the missiles and where. We knew where Soleimani was going to be and when. We even have video of the shoot down. We have satellites, drones, electronics, and human spies telling us everything now. It means we have a major advantage if there is a war.
The message from the Dems to the bad guys around the world is -help us get elected, and we will go back to the Obama policy of do nothing, appeasement, and you can go ahead and kill and attack Americans including our ambassadors, and we will just lie about it, wag our finger and go to the UN, and maybe even give you a few billion.
That policy is how we got here, and how the JCPOA was done in the stupid belief that playing nice would change their behavior. It is the same stupid policy that led to allowing China into the WTO thinking that would get them to act properly. These fools never learn that the way to deal with bad guys is to kill them, or crush their economy.
Playing nice and diplomacy only gets you dead Americans and terror, invasions of Crimea, and other very bad acts. It also now turns out that the deal allowed them to prevent full inspections, and they have been cheating from day one. And Biden wants to reestablish JCPOA! How stupid can he be. Just when Congress should be in loud support of Trump’s policies against Iran, they want to impeach and pass total limits on Trump’s ability to respond quickly and effectively as things unfold. Imagine if the Dems get back in control. The world will lose the opportunity to change history.
Despite the fact that Iran has openly violated the JCPOA, the EU has reiterated that they will do nothing other than try to convince Iran to comply. This continues the European foolish view that we need to just talk to Iran, and maybe they will behave.
There are enforcement covenants in the JCPOA, (remember those snap back sanctions Obama claimed) but the Europeans ignore them, so of course Iran just goes on developing their nukes. This is how we got into so much trouble around the world.
Europe, led by Merkel, refuses to act when confronted by the bad guys, so the bad guys just go ahead and do more bad things. It is the same naïve policies of Obama Biden that has allowed Iran to become such a destructive force in the Mideast. It boggles the mind that none of these people ever seem to learn anything.
Like people in the deep state in Washington, they adhere to the old failed policies of diplomacy instead of taking real actions that make a real difference. The definition of an idiot- keep doing the same thing over and over even when it fails. Trump should keep reminding the EU about Chamberlain. Trump has upended all of that failed policy mantra, and that is why they dislike him so much. The good news is he doesn’t care what they think.
The new no bail law which forces judges to release criminals who rob, assault people, shoplift, etc has already led higher crime in just two weeks and major push-back already from the public. Welcome to progressive ideology ruining everyone’s lives. Prices in drug stores and other shops are already up to cover the losses from shoplifting.
When you start to think Medicare for all or ACA is good, consider this. The US has the lowest cancer death rate of any industrial nation. It is 20% lower than the UK and 10% lower than Canada. In both countries, some of the new cancer treatments are prohibited because they are too expensive. So you are left to die. That is what the Dems never want to talk about when they talk about the public run health care. The reality is when you talk to Canadians, they will tell you that if they have some money, they come to the US for any major medical issues such as knee replacement or other complex procedures where they cannot wait for up to a full year or much longer. They have some sort of insurance coverage through banks that allows them to be covered for procedures in the US.
Same as usual – Uncle Sam always helps other countries – even when it comes down to insurance and death – and they end up hating us because we can help them.