We are absolutely in a stock market bubble: corporate equity valuations now higher than peak reached in 2007. Crestmont P/E of 26.3 is 90 percent above its average of 13.9.
Once again the stock market is in full bubble mode. The internet chat forums are full of people pumping up stocks and you also have penny stocks surging in light of people looking for the next free lunch. The stock market is a poor indicator of the overall economy but it does show how those with disposable income to invest are thinking. Even on more conservative investing boards, those that advocate dollar cost averaging into broad based mutual funds or stocks, you have people throwing caution to the wind and trying to time the market or go all in on stocks fully ignoring bonds as a part of a balanced portfolio. The market was already overvalued earlier this year and the froth continues to build. The Crestmont P/E of 26.3 is now 90 percent above its average of 13.9. Valuations are off the chart and euphoria is setting in. You even have penny stocks going up in rocket rides up which was very common during the tech boom of the 1990s. At the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino. All the signs are there: massive speculation, unexplainable valuations, and blind optimism. All signs of a bubble top when the fundamentals don’t make any sense.
How the US is creating a low wage workforce: Foreign born workers earn 79.9 percent compared to native born workers.
Over the last decade the U.S. has entered into a low wage economic trend impacting the overall economy. The result has been for many once middle class familiesto fall one or two rungs lower on the economic ladder. Many corporations have boosted their bottom line by using slack in the labor force to cut wages, slash benefits, and ultimately filter more profits away from workers. This is how you achieve a record level in the stock market yet wages have been stagnant for well over a generation adjusting for that pesky background “noise†of inflation. Another way that wages get depressed is by examining our foreign born workforce. There is data showing that foreign born workers earn 20.1 percent less than native born workers (79.9 percent the pay of native born workers) in the U.S. Even when we look at college education, we find that foreign born workers simply add more pressure on current workers giving companies an excuse to undercut wages and in many cases slash benefits. For example, this is very common in the tech sector where companies will bring in foreign born workers via H1-B visas and pay workers reduced wages and typically these workers received paired down benefit packages. This is simply another example of how we are entering a low wage workforce.
The Red Queen’s Race in pay raises: Record number of employed US workers report no change in wages or salary. Stagnant wages and inflation eating away at purchasing power.
A record number of Americans currently working are reporting no wage increases over the last year. What is important to note in this recent report from the Federal Reserve is that this is for those working and staying in their current job. As we know, we have a growing army of people in the “not in the labor force category†and we can assume, that they are not receiving any pay raises. If the economy were booming (assuming the stock market is a good barometer) we should see a healthy increase in wages as demand for labor increases. That is simply not the case and this report only adds more fuel to the fire that we are entering a phase of low wage America. Pricing power is in the hands of corporations and banks have created an entire nation fully dependent on debt to have any sort of middle class life. Only a generation ago, a careful saver putting away the earnings of their labor could enjoy a middle class lifestyle. That is out of the question today. You think you can pay $30,000 a year in tuition to go to college out of savings? Or what about buying the typical $200,000 house? Your average new car now costs $30,000. Good luck doing that when the per capita wage in the US is $26,000. The fact that a record number of currently employed workers are receiving no pay raises should give you a hint as to how healthy this recovery is.
Feeling poorer through the power of inflation: Since January of 2000 college tuition is up 68 percent, new car costs are up 55 percent, your typical home is up 50 percent, and wages are simply not keeping up.
You have to love how the Federal Reserve downplays inflation when they are the primary source of it with other central bankers for this monetary phenomenon. They continue to play inflation down because it gives them the power to continue to use policies that seem to only aid their banking allies while making working Americans poorer by the day. Inflation has a slow eroding power that is not readily visible since it usually takes time to work through a system. Looking at a broader timeframe however it becomes readily apparent that inflation is hitting our system hard and most working families don’t need an advanced degree in economics to understand this. According to the CPI, the overall rate of inflation since January of 2000 has been 39 percent. The Fed prefers to use the PCE Deflator measure and this only has inflation running at a 31 percent rate. But when we actually look at the cost of goods and services across the spending spectrum we realize that inflation is very much alive and well with us.