Just a little pinprick.
There’ll be no more
But you may feel a little sick.
– Pink Floyd, “Comfortably Numb” (1979)
They call the CBOE Volatility Index “the VIX.” It’s often described as the market’s “fear gauge.”
These days, what it really registers is “complacency.”
Sure, for a momentary lapse during February’s plunge it hit 37.2. But the VIX is down below 12 today, comfortably numb – just about where it was a year ago, too.
And it makes all the sense in the world: The market is now just a medicated sock puppet of the Federal Reserve.
Our central bankers see nary a cloud in sight. From the Eccles Building, it looks like a “strong” economy cruising toward a perfectly smooth landing.
We’ve got full employment over here, moderate inflation over there…
And, in between, there’s a whole lot of nothing.
For instance, industrial output is up a measly 2% from its pre-Global Financial Crisis/Great Recession peak in November 2007.
And take-home pay for wage and salary workers has grown by only 4%. That’s about 0.3% per year.
It bears repeating right about now that the Fed’s inflation “target” is 2%.
Think about that math…If it feels like a lot of folks you know just can’t keep up, that’s because it’s true.
Indeed, here’s the one thing that has risen Main Street: the cost of living index.
It’s up nearly 20%.
The Fed would have you believe “stagnant” is the new “strong.”
The notional net worth of U.S. households has risen to $100 billion from $67 billion at the 2007 peak and $40 billion just before the turn of the century.
So our monetary central planners have taken their bows for bringing fabulous prosperity to America.
Indeed, the Fed has stimulated $60 trillion of paper wealth gains for U.S. households since the turn of the century.
But most of it ended up in the pockets of the Top 1% and the Top 10%, who own 40% and 84% of the publicly traded equities, respectively.
The explosive growth of the Fed’s balance sheet since the turn of the century dumped $4 trillion of fiat cash onto Wall Street.
Of course, it unleashed mega-inflation in financial asset prices that helped the rich.
Meanwhile, the Fed – in its lunatic pursuit of the 2% inflation target – ignores what’s happening on Main Street.
Here’s a simple example.
In its “official” inflation calculations, the Bureau of Labor Statistics uses “hedonic quality adjustments.”
That’s a big way of saying it accounts for new equipment and quality improvements in, say, automobiles.
The bottom 80% of U.S. households buy a lot more used cars (44 million) each year than new cars (17 million). And the cost of a used car is about 35% higher than it was in 1995.
It’s no wonder the rubes finally said “enough is enough” and turned to the likes of Donald Trump for rescue.
Regular Americans may not get the fine points of “QE” and “ZIRP.” But they know monetary central planners are lying when they speak of a “strong” economy.
They can see swell monetary inventions have certainly pleasured Wall Street a lot more than they’ve benefited Main Street.
It’s a tale of two economies.
And it’s not remotely sustainable.
You’d imagine that – by now – Wall Street’s big thinkers and Imperial Washington’s top strategists would get the joke.
The Donald’s election was always a dagger aimed squarely at Bubble Finance.
His Trade War and the GOP’s Fiscal Debauch mean the reckoning is fast approaching.