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We’re richer than ever

Every time the stock market reaches new highs, the worrywarts trot out their bubble theories. That is especially true today, since "everyone knows" that central banks all over the world have been pumping money by the kiloton. Surely the stock market this.

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3 years ago

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Every time the stock market reaches new highs, the worrywarts trot out their bubble theories. That is especially true today, since "everyone knows" that central banks all over the world have been pumping money by the kiloton. Surely the stock market this time is inflated, and it wouldn't take much to pop this bubble, right? 

In my 40 years as an investor I have lived though four equity market disasters which were invariably termed popped bubbles by many pundits. The most recent—which began last March—was burst by the Global Pandemic Shutdown. Prior to that we had the onset of the Great Recession in 2008, which left the entire world financially and economically devastated by early 2009. Prior to that we had the bursting of the dot-com bubble in 2001-2002. My first popped bubble came in 1987, when I worked at Leland O'Brien Rubenstein (LOR), which many accused of precipitating the bursting (LOR invented "portfolio insurance"). 

Are we getting close to the next popped bubble? I wish I knew. But I don't think it's obvious or inevitable, at least for awhile. The best I can do is to survey the charts which follow, since they help to put the current situation in perspective. What I think they show is that over the long march of financial history, things just get better and better. The occasional bubbles are painful, but they are eventually overcome, thanks to the engines of free markets, free trade, and the incentives of capitalism. And while monetary policy has never been as "easy" as it is today, other important measures of financial and economic well-being are not out of line with what we have seen in my lifetime.

Despite all the huge ups and downs, the average person today is richer than ever before. And he or she will likely be even richer before too long—it has been ever thus. This is the fundamental case for being a long-term, rational optimist. 

Chart #1

Chart #1 shows the key components of the net worth of U.S. households and non-profit organizations (total assets minus total liabilities). Most of the increase since the Great Recession has been healthy: financial assets have soared, while real estate and debt have increased moderately. This has not been a debt-fueled expansion like we saw in the runup to 2008.

Chart #2

Households' balance sheets have improved dramatically since 2008, as shown in Chart #2, thanks to the fact that financial asset valuations have improved by much more than the increase in debt. Households' leverage (total debt as a percent of total assets) has dropped by almost 38% since 2008, and it has not been this low since late 1983. Without excessive leverage in the system, the system becomes inherently more stable.

Chart #3
 
Our government's net worth has taken a beating, thanks to the federal government borrowing just over $4 trillion this past year. Total federal debt owed to the public now slightly exceeds our GDP for the first time since WW II (see Chart #3). Doesn't this just offset the declining leverage of the household sector? Not exactly.

Chart #4

Federal debt is huge, but that is not as bad as you might think, thanks to the extremely low level of Treasury yields. As Chart #4 shows, the true burden of the federal debt (debt service costs as a percent of GDP, which is equivalent to the debt burden of your household, which is debt service payments as a percent of your annual income) is historically quite low. Federal debt ratios have increased, but the debt burden has decreased; interest costs have fallen even as total debt has increased. Federal debt burdens could become problematical in the future, but only after years of rising interest rates and continued borrowings.

Chart #5

Meanwhile, the real, inflation-adjusted net worth of the private sector (see Chart #5) has been steadily increasing. The nominal and real net worth of the U.S. private sector is at its highest level ever. As the chart also suggests, real net worth tends to increase by about 3.6% on average over time. That is extraordinary. Yes, there have been huge setbacks along the way, but in the end, things continue to improve. This chart also suggests that conditions today are not out of line with historical experience. As least they are not nearly as bad as the period just prior to the Great Recession.

Chart #6

To be fair, the growth of the U.S. population and its workforce accounts for some portion of our increased net worth. Chart #6 addresses that issue. It is the result of dividing the statistics in Chart #5 by the size of the US population. The chart suggests that the average person in the U.S. has a net worth of about $370K, which is about six times our per capita income. To be sure, there are lots of billionaires which are likely distorting these numbers, but what really counts is the aggregate wealth of our country, since that wealth is a function of all the roads, bridges, trucks, stores, houses, factories, corporations, knowledge, computers and personal services that are available to each and every one of us. On this basis also it's clear that things have never been so good. Never before has the average person enjoyed the benefits of such an elaborate infrastructure we have today.

Chart #7

Chart #7 shows the long-term view of the progress of U.S. corporations, as proxied by the S&P 500 index. Here we see that the nominal value of our major corporations has increased by about 7% per year on average. Nominal net worth per capita has increased by almost 6% over the same period. Corporate wealth has likely outpaced individual wealth because globalization has allowed our corporations to expand their market share worldwide. Caveat: take all trend-line projections such as this with a grain of salt; they have a large subjective content. 

Chart #8

Chart #8 shows the nominal value of global equities, which, since 2004, has increased by almost 8% per year and now stands at a lofty, all-time high of $100 trillion, according to Bloomberg. (Note that this calculation is based on actively traded primary securities, which means that ETFs and ADRs are excluded in order to avoid double-counting.)

Chart #9

Chart #9 compares the market cap of US and Non-US equities. US equity valuations have improved by far more than non-US equities since the Great Recession, but non-US equities have slightly outperformed for the whole period. 


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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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2 hours ago

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March 9, 2024

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Spread & Containment

Another beloved brewery files Chapter 11 bankruptcy

The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.

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March 9, 2024

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Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.

It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business. 

And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.

During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.

Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.

Overall beer sales have fallen.

Image source: Shutterstock

Covid is not the only reason for brewery bankruptcies

While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,

Beer sales have fallen to their lowest levels since 1999 and some industry analysts

"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.

Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.

Another brewery files Chapter 11 bankruptcy

Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11. 

"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained. 

Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors. 

The popular brewery operates three taprooms and sells its beer to go at those locations.

"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.

The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).

Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.

 

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