The major averages surged to begin the week on little real economic news. Price hikes in response to the assorted trade tariffs are beginning to crop up as expected. While the political situation remains as unstable as ever domestically but also in Europe and Asia. Makes you wonder why the major averages are rallying, but there you go.
Considerable ink has been spilled on the generational low recent unemployment rate of 3.8% and that this will lead to large wage gains and cost push inflation. To date both remain notably absent as most of the inflation gains are tied to higher energy, and in particular oil prices. The Economic Policy Institute or EPI looked at employment and wages, concluding that despite very low unemployment rates and numerous anecdotal stories of employers unable to find qualified labor. Wage growth remains largely absent. The implication being that if labor markets were really as tight as indicated competition for skilled labor would be fierce, driving wages sharply higher in the process. The fact that they aren’t and given that the labor force participation rate remains far below its pre-bust peak, speaks volumes about the true state of the labor market and that it isn’t anywhere near as strong as the headline unemployment rate implies.
More than a few people have looked at corporate share buy backs in the last 20-years or so and concluded that the previously illegal practice, it was considered blatant stock price manipulation, has primarily enriched executive management at the expense of shareholders. With buy backs currently running at record high levels, as they did just before the previous crisis, it’s worth noting that they have in many ways become the market. Distorting both Fair Market Value or FMV pricing of the shares themselves and also skewing the EPS or Earnings Per Share ratio by dramatically reducing the number of shares outstanding. Providing perfect cover for declining earnings and revenues as Wall Street Analysts primarily focus on the EPS number not the aggregate level of total earnings, which for many companies has fallen steadily of late, headlines about record earnings notwithstanding, as there’s lies, dam lies and statistics.
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