^ the tax cuts are working

Markets in free fall.

 

A 10-12% correction would be healthy; 20% would be stressful; 30% and the party's over.

The insane thing about this run-up is that even after the collapse of the past week, a few stocks that I bought on 1/23 are still just barely positive since purchase.  I don't think that'll last much longer if this sell-off continues, of course.

 

Markets in free fall.

 

A 10-12% correction would be healthy; 20% would be stressful; 30% and the party's over.

 

20% would be back down to a DJIA of just under 21k.  I think that's well within the realm of possibility.  30% would be down just over 18k.  Even that is at least plausibly within the realm of possibility, though don't get me wrong, if we see that kind of level again, I actually consider the party to be just getting started, not over.  In fact, I start to get both a little giddy and a little greedy.  I don't view that as a catastrophe, I view it as a better future for me and my family going on sale.

 

That said, while I'm not going to say that stock market talk is off-topic for a U.S. Economy thread, the stock market is not synonymous with the economy.  It's not even always a reliable indicator of the health of the broader economy, let alone the actual changes in real living standards enjoyed by most Americans (even the ones who have modest stock options as part of their compensation packages).

Not too shabby:

 

DOW: 26,616.71 (+7.68% YTD)

NASDAQ: 7,505.77 (+8.73% YTD)

S&P: 2,872.87 (+7.45% YTD)

NYSE: 13,637.01 (+6.46% YTD)

 

These all might be ~0% YTD by EOD.

 

0% proved to be optimistic.

Cryptocurrencies also getting hammered.  Interesting to see that people are not seeking shelter in the "digital gold" we kept hearing about during bitcoin's crazy 2017 run-up. 

 

That said, while I'm not going to say that stock market talk is off-topic for a U.S. Economy thread, the stock market is not synonymous with the economy.  It's not even always a reliable indicator of the health of the broader economy, let alone the actual changes in real living standards enjoyed by most Americans (even the ones who have modest stock options as part of their compensation packages).

 

Yep. The stock market is goofy. There was good wage data which caused Wall Street to fear Fed rate increases. Um, rising wages should mean more purchasing and manufacturing, and thus a stronger economy and corporate value. Yet Wall Street says "sell!" I have a longer view. I rearranged my portfolio last week but I didn't sell it.

Rising wages = inflation risk to investors.

 

That said, while I'm not going to say that stock market talk is off-topic for a U.S. Economy thread, the stock market is not synonymous with the economy.  It's not even always a reliable indicator of the health of the broader economy, let alone the actual changes in real living standards enjoyed by most Americans (even the ones who have modest stock options as part of their compensation packages).

 

Yep. The stock market is goofy. There was good wage data which caused Wall Street to fear Fed rate increases. Um, rising wages should mean more purchasing and manufacturing, and thus a stronger economy and corporate value. Yet Wall Street says "sell!" I have a longer view. I rearranged my portfolio last week but I didn't sell it.

 

Mentioning the Fed reminded me of one thing that might have something to do with the sell-off, though I think it would be an irrational and ephemeral reason for the sell-off: Janet Yellen's term at the Fed officially ended today; Jerome Powell was sworn in today.

 

https://www.nytimes.com/2018/02/04/business/economy/powell-steps-becomes-fed-chief-as-economy-starts-to-show-strain.html

 

That said, Yellen and Powell aren't all that different on rate management priorities, and Powell's nomination was in November, so it's not like this came as a surprise.  It could be simply coincidental timing.  But lots of people nevertheless put a whole lot of faith in the Federal Reserve, and the chair of the Fed in particular, as some kind of overarching manager of the economy.  That has never been particularly fair, but the market doesn't require people's thoughts to be fair.

 

To be perfectly honest, I personally don't think this correction has much to do with the Fed, but the coincidence of timing was interesting.

https://www.vox.com/policy-and-politics/2018/1/31/16955904/donald-trump-state-of-the-union-janet-yellen-fed

 

Janet Yellen was the first female Fed Chair in history, passed with the fewest number of votes ever out of the Senate, was widely critiqued and questioned despite being perhaps the most qualified Fed candidate in history, is the first Fed Chair in modern history to not be renominated after her first term, and is being replaced by a man who has no advanced degree in economics, the first Fed chair in nearly 40 years to not hold such a degree.

He did her a favor, though I'm sure not intentionally.  The performance of these past four years will be hard to match.

https://www.vox.com/policy-and-politics/2018/1/31/16955904/donald-trump-state-of-the-union-janet-yellen-fed

 

Janet Yellen was the first female Fed Chair in history, passed with the fewest number of votes ever out of the Senate, was widely critiqued and questioned despite being perhaps the most qualified Fed candidate in history, is the first Fed Chair in modern history to not be renominated after her first time, and is being replaced by a man who has no advanced degree in economics, the first Fed chair in nearly 40 years to not hold such a degree.

 

The degree thing isn't huge to me. Lloyd Blankfein was a History major that went to law school.

 

But I agree, Yellen deserves much more praise.

Rising wages = inflation risk to investors.

 

That's a maybe. More certain is the economy will grow with wage increases.

Rising wages = inflation risk to investors.

 

That's a maybe. More certain is the economy will grow with wage increases.

 

I'm just telling you what investors see - three (maybe even four) rate hikes this year, bringing bonds more into play. Inflation risk is much higher than anticipated.

Treasuries are starting to look attractive for a small portion of a portfolio.

Treasuries are starting to look attractive for a small portion of a portfolio.

 

That or SPXU if you're feeling risky haha.

 

This is the start of the stupid cycle we've seen with the last two Republican tax cuts.  Tax cuts = more wages.  More wages = inflation & higher interest rates.  Higher interest rates = massive fall in stocks.  Massive fall in stocks = laying off workers.

 

If only we could have looked at history.../s

My general thoughts after taking way too many macroeconomic courses and international financial economies, etc.:

 

There is a big correction that needs to happen, and the general policies right now are just pushing it aside.  So, maybe we can roll along for awhile but guessing this will get corrected on the stock market, and will probably cause some sort of mini-recession, as markets correct.

 

All that said, it is still going to be "off" until we can get the major correction which covers things like the deficit to start cutting down the debt, repairs of major infrastructure, etc. 

 

It seems we've just been gliding by for too long, though Obama policies were starting to cut into the deficit towards the end (I believe), but now it looks like we reversed course.

 

**Edit: I think Obama policies moving forward would have definitely helped to continue to cut into the deficit if it was still on-going.  I think there was some things that needed to be fixed with those policies, but now I fear we are diving deep into some stuff which I think there should be concern about future big recession.  I think in the meantime it will be a bit of a mini-recession and not fall off the cliff as we don't have a massive bubble. 

 

Besides of course the student loan issue, which I think is going to have long term economic ramifications on everything within the economy.  People tend to forget about that one in general, as older folks are just worried about their retirement and 401k, the younger generation is struggling to pay off debts from school, which keeps dragging the economy down.  Instead of massive tax cuts, it probably would have been more beneficial to pay off / forgive the student loan debts for people who are hitting certain metrics like on time payments for 3 years, etc. and then hit a balance with corporate tax rates.  That would REALLY boost the economy, not certain if any studies have looked into it though.

 

In the end, I'm kind of sick of hearing: OMG so and so got a $1,000 bonus.  That bonus helps, but it doesn't really do jack for the whole economy.  They need to be like $10,000 bonuses to make a huge difference for individuals, or the smaller bonus and ramp up hiring and wages which doesn't really seem to be the case yet. 

 

On top of that, an issue that we will continue to see is now a massive shorters of workers as the economy is grown towards full strength.  Something of note in my line of business now is the massive shortage of truck drivers.  There needs to be a huge correction there which will be in the form of increased transit rates to lure more drivers, but we also will need to recruit more drivers which at a full economic output is very difficult.  The solution is immigration to fill those spots...

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

Because prospective truckers can't pass drug tests.

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

It's interesting when you read about worker shortages in certain segments that higher wages are never considered as the solution.  Supply and demand would tell us that higher wages are necessary.

it looks like a slight recovery for the Dow today.  although there are still some mild fluctuations.  Good earnings report from GM might be helping.

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

My friend tried it for one year. Low to no pay. Horror stories about common practices to skirt safety requirements. My advice to everyone here is to avoid being near any truck you see on the road.

 

Anyhow I imagine trucks will soon be replaced by larger versions of amazon drones. Or robotic fleet of Teslas.

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

Because prospective truckers can't pass drug tests.

 

Is the correct answer

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

It's interesting when you read about worker shortages in certain segments that higher wages are never considered as the solution.  Supply and demand would tell us that higher wages are necessary.

 

It also suggests that much of the "shortage" buzz is kind of overblown, or at least misleading. What trucking companies are really saying is "we could make more money if there were more sufficiently employable people willing to do this kind of work at this wage level."

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

It's interesting when you read about worker shortages in certain segments that higher wages are never considered as the solution.  Supply and demand would tell us that higher wages are necessary.

 

It also suggests that much of the "shortage" buzz is kind of overblown, or at least misleading. What trucking companies are really saying is "we could make more money if there were more sufficiently employable people willing to do this kind of work at this wage level."

 

Just as with teachers, if you spread out the hourly wage to the amount of occupied time by profession, it's not good. While you're stranded in Dubuque, Iowa waiting for another run, you're not getting paid.

^Yeah I think a couple things though on the shortage:

 

1.) They need to raise wages to get better workers, thus that is the shortage is their reluctance to pay higher wages isn't attracting the people they need

 

2.) Downward pressure by customers of trucks to keep prices low

 

Thus, the correction that will eventually take place is higher consumer goods to keep the economy moving with reliable transport.

 

It just has to happen and is inevitable. You are right, truckers aren't making any money.  But where it is starting and ending is at the ports, at the mills, etc.  It is going to have to be a correction at some point, and that is kind of boiling hot right now, it will come sooner than expected where the trucking companies will get together and say "OK, we can't get this business done, it is across the board, we have to raise wages to get more truckers thus increasing prices to consumer goods."

The trucker shortage has persisted forever.  Better wages seem like a good solution but nobody ever wants to try that.  USA Today did a big investigation last year and found some truckers actually making negative wages.

 

It's interesting when you read about worker shortages in certain segments that higher wages are never considered as the solution.  Supply and demand would tell us that higher wages are necessary.

 

That's the story of supply, demand, and wealth.  Wealth is the controlling factor.  Wealth claims supply and demand are independent, but wealth is lying.  To the extent you own the resources, their price is whatever you say it is. 

 

Back to the trucker example, the drivers were told leasing the trucks as contractors made them into big-shot businessmen.  But the lease and fuel payments are more than the pay for using the trucks, and the real owners take the trucks back as soon as this becomes apparent.  Sorry, there just wasn't enough demand for trucking services!  But that only affects wages, not the value of trucks.  Both of which are determined by us.  That's why we're rich, because we understand economics and you don't.

^ I laugh when the idea of raising minimum wage or rent seeking through unionization is criticized by free market worshipers.  Their argument is that your wage is determined by a fair open market.  as if, burger flippers are negotiating on even ground with the owners of wealth.

It just has to happen and is inevitable. You are right, truckers aren't making any money.  But where it is starting and ending is at the ports, at the mills, etc.  It is going to have to be a correction at some point, and that is kind of boiling hot right now, it will come sooner than expected where the trucking companies will get together and say "OK, we can't get this business done, it is across the board, we have to raise wages to get more truckers thus increasing prices to consumer goods."

 

Of course, that "correction" might also happen through automation in the not-too-distant future. Even if self-driving hype has probably gotten a little ahead of itself overall, have to think the long haul portion of trucking will be the easiest kind of driving to automate.

^ I don't disagree with you but we are starting to see significant ramifications already, there won't be enough time to have some correction take place before automation.

 

Almost every single one of our shipments, either LTL or TL or drayage to and from Port is delayed across the board.  Truckers are refusing to pick up freight at ports because they aren't paid enough due to the congestion being too high (because we haven't invested in port infrastructure), thus truckers wait all day to pick up.  Driver shortages on domestic freight is causing carriers to cut into lanes, saying this lane only goes once four truckloads are filled, etc., sometimes taking a week to go 200 miles.  Pricing is starting to inch up.  Automation won't happen for a long time and the problem is getting worse every single day for truckers.  Industry experts are saying this is starting to really boil red hot

It just has to happen and is inevitable. You are right, truckers aren't making any money.  But where it is starting and ending is at the ports, at the mills, etc.  It is going to have to be a correction at some point, and that is kind of boiling hot right now, it will come sooner than expected where the trucking companies will get together and say "OK, we can't get this business done, it is across the board, we have to raise wages to get more truckers thus increasing prices to consumer goods."

 

Of course, that "correction" might also happen through automation in the not-too-distant future. Even if self-driving hype has probably gotten a little ahead of itself overall, have to think the long haul portion of trucking will be the easiest kind of driving to automate.

 

Much more likely.  Again, the trucker shortage has persisted for decades.  Same question I ask any time supply-siders say favorable conditions are imminent-- when?  Pick a date.  People have waited their whole lives and it just never happens.  No correction, no balance, no change.  At some point we have to admit that the theory, at least as so applied, is hogwash.

 

^ I don't disagree with you but we are starting to see significant ramifications already, there won't be enough time to have some correction take place before automation.

 

Almost every single one of our shipments, either LTL or TL or drayage to and from Port is delayed across the board.  Truckers are refusing to pick up freight at ports because they aren't paid enough due to the congestion being too high (because we haven't invested in port infrastructure), thus truckers wait all day to pick up.  Driver shortages on domestic freight is causing carriers to cut into lanes, saying this lane only goes once four truckloads are filled, etc., sometimes taking a week to go 200 miles.  Pricing is starting to inch up.  Automation won't happen for a long time and the problem is getting worse every single day for truckers.  Industry experts are saying this is starting to really boil red hot

 

Where.  Are.  The.  Wages.

^Maybe, I don't know, we work with brokers who have been in the industry for 40 years and they say they have never seen anything like it.  They are having to give 3 weeks notice for pick ups where as 2 years ago it was 1 day notice on port shipments to schedule.  It's a hot mess right now at the ports and other lanes. 

 

What is a correction?  Increased pricing on consumer goods, increased spending by states on ports.

 

Something we might say take a load off is increase in rail freight traffic.  It actually seems like we've been seeing that across the board for awhile, but that will continue to ramp up for lower cost options.

 

For an example, one of the warehouses we use in upstate NY is having a NS Freight line built directly to their storage and production facility to save on costs of trucking from the NY Port, because it has gotten so expensive they were risking losing business

"Leathers says his company has increased wages, so drivers can make up for lost time on the road. The median annual wage for heavy and tractor-trailer drivers was $41,340 in May 2016, according to the BLS.

 

"Pay in the industry's come up considerably. Here at Werner our pay's up 17 percent over the last couple of years," Leathers says. "First-year entrants into the industry now make around $50,000 a year depending on what part of the business they go in. So it's a good job. It pays well; you can build a family around it. It's about getting that awareness out there.""

 

https://www.npr.org/2018/01/09/576752327/trucking-industry-struggles-with-growing-driver-shortage

At 40 hours a week that's around $20 per hour, at 50 hours a week it's more like $15.  And this is after wages have "come up considerably."  And median means half of them are making less.  And we're talking about a job that involves living in a truck.  But the driver shortage is caused by insufficient awareness of how generous the pay is?

I've always heard it was a well paying job... is it the over-the-road guys who make far more?

They advertise it like it's well paying, but the companies all have a different pay structure each with its own FU's.

So it's a good job. It pays well; you can build a family around it.

https://www.npr.org/2018/01/09/576752327/trucking-industry-struggles-with-growing-driver-shortage

 

Yeah, if your family doesn't mind seeing you only once a week. Unless you're just a regional driver and all the truck drivers want those limited jobs.

^Yeah, I wasn't saying that personally, that was from the article.

 

For some people it would be a really good pay bump but it depends on the person obviously.

 

I think what it was showing though was that wages are increasing, but they will need to increase even more.

 

The question remains: What is the definition of a correction?  For myself, it is consumer pricing.  I don't know if anyone is arguing with me about it or not, seems like a few people are saying automation will correct this, I am saying it probably will eventually but not in the near term.

 

With the economy doing better and more jobs being filled at higher wages, interest rates increasing, employment tightening, etc., pricing is going to go up in the trucking industry, COGS aka consumer pricing will increase.  That is the correction I see as currently trucking prices haven't increased much. 

 

That goes to Amazon, to UPS, Holland, CRST, a million different things, across the board increases, and we will see that in the next few years, I can guarantee it.

 

Also I did say that innovations in rail freight and increased rail freight traffic will probably take a load off of the pressure on the truck drivers too.  Unless all the sudden Trump decides to let some poor immigrants come into our country to run the trucks at the price these companies want to pay, prices are going to go up.

Truck driving generally does not pay well.  The guys at our company make maybe $16/hr to drive a box truck and the semi drivers make maybe $22/hr.  Yes, they can earn a lot of overtime, but that's with very early mornings (like hitting the road at 5am, so they need to wake up at 3:30) and sometimes very late nights, especially if they break down out in Indiana or Kentucky or wherever. 

So it's a good job. It pays well; you can build a family around it.

https://www.npr.org/2018/01/09/576752327/trucking-industry-struggles-with-growing-driver-shortage

 

Yeah, if your family doesn't mind seeing you only once a week. Unless you're just a regional driver and all the truck drivers want those limited jobs.

 

Truck driving is a lousy job.  You only get paid for mileage and too often the drivers end up sitting, waiting to get loaded/unloaded and you aren't getting paid then.  They are getting phased out for auto-piloted trucks soon enough anyhow.

It's an absolutely brutal job; a friend of mine is on his 6th month, and it's just very lonely, tiring, unhealthy, and poorly paid when you add all expenses. And that's with good weather.

It's an absolutely brutal job; a friend of mine is on his 6th month, and it's just very lonely, tiring, unhealthy, and poorly paid when you add all expenses. And that's with good weather.

 

Some of it's comparable to the company store. "Here's what we owe you, after we take out what you owe us."

https://www.reuters.com/article/us-usa-economy-gdp/surge-in-imports-helps-curb-u-s-economic-growth-in-fourth-quarter-idUSKCN1GC1Z1?feedType=RSS&feedName=topNews&utm_source=twitter&utm_medium=Social

 

Gross domestic product expanded at a 2.5 percent annual rate in the final three months of 2017, instead of the previously reported 2.6 percent pace, the Commerce Department said in its second GDP estimate on Wednesday. That was a deceleration from the third quarter’s brisk 3.2 percent pace.

 

The downward revision to the fourth-quarter GDP growth estimate largely reflected a smaller inventory build than previously reported. It was in line with economists’ expectations.

 

The economy appears to have lost further momentum at the start of the year, with recent data showing retail sales, home sales, durable goods orders and industrial production declining in January. In addition, the goods trade deficit widened last month as exports fell.

^ another tax cut should fix it.

All those conservative HVAC company and auto repair shop owners got explosively optimistic that Trump would shove the economy into hyperdrive by eliminating some minor regulation particular to their industry that they hated. It didn't happen and won't happen regulation elimination or no. That pushed up the economy last year but isn't enough when the numbers aren't actually there.

Not to mention that people like me are going to take the extra money in their paycheck and put it into savings. I'm not the type of person who's going to buy a fancier car or take a more extravagant vacation just because I saw a modest bump in my paycheck due to this new tax plan.

^ exactly right.  It is not enough money for most families to have any appreciable difference on their lifestyles.  During the Bush administration they sent out a small check to every taxpayer which helps but $10 per pay doesn't go very far.

There is going to be more money in taxpayer pockets so it should help stimulate the economy some but the fact is that the economy is already at pretty much full employment so the only way to really send it into hyperdrive is more immigration (not happening) and increasing exports (not going to happen).  Exports won't appreciably increase because the cost of goods sold is much higher in the USA than most other places, save for certain things.

 

The rest of the underdeveloped world would need to develop much more to unlock more exports.  So places like Africa, if they suddenly had a huge increase in per capita GDP they would start buying USA goods and hardware like grain silos and machinery, etc.  It happens already in a small effect but not big at all. 

 

Basically this tax cut is going to increase spending a small amount domestically.  I bet probably around 50% of the new money to taxpayers is going to go to savings or paying down debt than it is to new spending, so basically the gain in new spending will be offset by the huge increase in the deficit and subsequently the debt, and another financial crisis, who knows what form it will be, will most likely happen (probably the stock market falling out).

 

Honestly and I just thought of this, but this savings would probably be better spent on a government program in the Congo increasing the education services and water accessiblity and medicine, which would help increase their health / education, help grow their economy then they can start buying USA Goods!

^ exactly right.  It is not enough money for most families to have any appreciable difference on their lifestyles.  During the Bush administration they sent out a small check to every taxpayer which helps but $10 per pay doesn't go very far.

 

And everyone forgets those checks even happened but sure does remember Iraq and Afghanistan!

^ exactly right.  It is not enough money for most families to have any appreciable difference on their lifestyles.  During the Bush administration they sent out a small check to every taxpayer which helps but $10 per pay doesn't go very far.

 

And everyone forgets those checks even happened but sure does remember Iraq and Afghanistan!

 

I think that the checks helped sell the tax cut to middle class families.  The messaging is easier.  It may have slightly helped with re-election. 

When you get a big check like that, you're more likely to blow it on something stupid, but the flip side is that also stimulates the economy. With a tax break where you see a little extra in each paycheck, you're more likely to save it, pay down debt, or make modest changes (going out to one extra fancy dinner per month, extend your vacation trip by 1 extra day, or something).