Wednesday, June 20, 2018

Looks Can Be Deceiving

Everything in the market is looking higher. It echoes the late great, Jackie Wilson song, Higher and Higher. Nasdaq recorded a new record high and the small caps joined the party. The Dow and Transports are well off their February lows. Finally, the Baltic Shipping Index is showing signs of life. Keep in mind that all this buying is happening with the usual geo-political tensions in the Middle East, the who knows real results of the summit with N. Korea and the on-going financial problems of the EU members that appear at the end of each month along with Brexit. Last month it was Italy. This problem won't just go away. Then, there are elections in Turkey which is leaning toward being the number one proponent of China's new Silk Road agenda. Finally, the trade war issues. The market refuses to believe that this is happening. It believes Trump will make a deal and all is well. Trade wars are happening.

Even if you don't think the trade war will last, governments have very small memories. Also, I don't trust the N. Koreans and Israel needs to recognize Palestine and stop expanding into land that is not theirs. Syria will be a problem for years to come as well as the entire Middle East. So, I question the internal mechanics of the market. I cannot put my finger on the cause of the markets climb in the face of this many problems. I realize that the buybacks have helped. I understand that the new tax breaks helped. I see the strength in the economy in the job numbers, but that final point is deceiving. Follow the story...

The BLS says the average worker receives $26 plus an hour. This is a skewed piece of data. Walmart is the largest US employer and their average hourly rate in under $15. See what I mean? If you work for Boeing or GM as a union worker, you easily make the BLS stat. However, the majority of workers are not union and can't make ends meet. Why, you ask?

The average price for a new car is over $30,000. You could have bought a house for that much in the 70s. This is an example of our lower standard of living. Our dollars buy less.
Even with the $26 per hour rate, workers cannot afford a new home which is over $326,000. In fact, families cannot even afford rent, if they can find one open. Rental rates are eating one-third of income even one half in many areas. The average price of a re-sale is $267,000 in many locations. Again, the national average is skewed at $207,000 like the hourly wage report. In my example I use the higher real figure in today's market prices for real estate.

Take for example, a New York City developer. He is adding 330 units of condos for sale. However, he is targeting the high end with two penthouses that run $70 million each. No one is doing anything for ordinary people in NY housing which is why one third of its citizens desire to move from the city.
Nationwide, there are 537,000 units being built according to CoStar Group Inc. The vacancy rate on the upper side is 13%, but few new apartments are affordable for working families even in the face of those high vacancy numbers. So, that leaves re-sales for shelter. Let's do the math.

Based on $26: which equals a weekly salary of $1040 less taxes. In addition, all other expenses must be subtracted from the total. This would include car payments, credit debt, school loans, etc.

I won't go into a home's curb appeal, although it connects to the title of piece. The mortgage payment on a re-sale of $267,000 is roughly $1136. This is based on present rates which are rising. Nevertheless, one needs to add taxes, insurance and possibly PIP. I will pass on the closing costs. To meet mortgage qualifications, a buyer must have enough on one weeks earnings to pass the litmus test. As you can clearly see, the average worker does not meet the standards. This is why home builders do not build entry level, single family homes. Therefore, the biggest and most important expense in our consumer society, the average person is not included. Job numbers do not equate to a strong economy, especially if workers cannot afford the products that one needs like food, energy and shelter. Our Federal Reserve is corrupt! They do not include those three necessities in their phony inflation formula.

There is two guilty parties for the plight of our lower standard of living: the Federal Reserve which dilutes our dollars value and the military complex that costs us our lives and eat up our annual budget. End the Fed! Cut the military! We are not the police force of the world!
Let us get back to what the founders visualized in framing our constitution: Promote the general welfare in seeking life, liberty and the pursuit of happiness.