Why Markets Should Continue to Rise This Year


by Nomi Prins, Daily Reckoning:

A government shutdown was averted last Friday when President Trump signed a $1.3 trillion, 2,232-page omnibus bill. The deadline was midnight Friday and the bill came out late Wednesday.

No one really had the time to go through it, and that’s on purpose.

The fact that no one really knew what was in it — besides the drafting committees and the lobbyists who crammed it full of pork — speaks volumes about how the people’s business is conducted in our democracy.

Theoretically, we still live in a republic, but the question is: Who exactly represents whom in Washington?

But let’s consider the driving force behind today’s rigged economy and rigged markets — the Federal Reserve.

One of the main reasons central banks have cited their historically cheap money policy is that making money cheap means that banks will lend it out to the main economy. The belief was that it would eventually stimulate Main Street.

But it just hasn’t happened. The gains have all gone to Wall Street.

Reports on the U.S Gross Domestic Product (GDP) for the fourth quarter of 2017 was nothing to write home about. At 2.6% annual growth, it was 0.3% lower than expectations. That type of a result is minimal at best.

Sadly, those in the financial media considered it positive because it showed 2.80% growth in real personal consumption. But let’s dig deeper…

Consumers represent about 70% of GDP. If you look beneath the surface, what you’d see is that consumers aren’t actually doing well across three core areas that allow consumers to spend.

First, there’s income and wages. On that score, fourth quarter real disposable income only grew about 1.80% above the previous year rate. Some 80% of workers are seeing flat to declining wage growth.

Packed within those details there’s also reporting on personal savings. In recent months the U.S savings rate fell to near its lowest recorded levels in the past 70 years. The only time it hovered so low was just before the recent financial crisis.

Second, there’s credit card debt. Over the last four quarters, it has increased by about 6% annually. That’s three times faster than its rate during the years following the financial crisis, and double the increase of income. What this means for those on Main Street is that they are keeping up with expenses by sinking into greater debt.

The Atlanta Federal Reserve has dialed back its first-quarter growth forecasts from 5.4% to a lackluster 1.8%.

Goldman Sachs, my old employer, lowered its own growth forecast to below 2%.

The promise from central bankers is that by injecting of money into the economy, they would help real people. But the data proves anything but.

But they need to continue propping up markets. They are all too aware that media hyped, government constructed “growth” isn’t real.

Despite the latest turbulence in the market is still the longest rally in history. Over the course of the nine years since the crisis, the S&P 500 index nearly tripled in value after hitting a low of 676.53 on March 9, 2009.

That’s a streak without any decline of 20% or more, making this bull market the second longest ever.

Many in the mainstream media attribute this good market fortune to “global economic growth and stronger company earnings.”

They know better, and you should too.

The truth is, it’s all about the $21 trillion fabricated by, and dispersed from, the world’s major central banks.

That money is conjured out of thin air.

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