Stockman Offers Etiology

David Stockman is at it again, with an excellent etiology of our present economic malaise.  As you read all of these analyses, it all gets down to funny money and usury.  One huge result of the disaster is the destruction of the small business component of our economy.  Compared to the 1970s, we have little in the way of small business.  And when we have less of something, what happens to the price (value) of what there is?  It goes up, right?

We lost two generations of entrepreneurs who went into the FIRE economy, to make their firtune, an entirely false economy at that.

Needless to say, the parabolic rise in financial sector profits from about 1.25% of GDP prior to Camp David to 4.25% of GDP today—call it a round $500 billion per year—is only the tip of the ice-berg. What lies beneath, according to the Commerce Department numbers crunchers, is “value-added” of some $3.75 trillion in the FIRE sector (finance, insurance and real estate), which generates the aforementioned accounting profits and consists primarily of compensation.

That number may seem small, but it is all profits tallies on paper.  If it were manufacturing it would be ten times bigger.  But we got rid of manufacturing, and what manufacturing we do perform is bail-out based, and anything we actually want we make overseas to avoid taxes and lander profits.

Now we need the austerity of WalMart products, McDonalds food, and Romney/Obamacare to keep this false economy alive.    Can we recover?  Well say you wanted to open a toaster manufacturing company.  Think of the parts you'd need.  forget about it.  We no longer have supply of those materials running through the USA, where fifty years ago such things were cheap and plentiful.

Now we have everyone making apps.  The materials for doing so are cheap and plentiful.  Except for some examples of "success theatre" where a few elect people are made billionaires by a rigged Wall Street, the vast majority of people out there are being subsidized on welfare while they pursue pixellated personal wealth dreams.

Speaking of plausible nonsense, there must have been some reason for investors to have been buying shares of newly listed King Digital (makers of the online game Candy Crush) in the secondary market this week, but we’re not aware of any compelling ones. Certainly not on valuation grounds. But then valuations in the US equity market as a whole seem to have got somewhat ahead of themselves. Value investor Tobias Carlisle (along with Tocqueville Funds’ François Sicart, and Farnam Street Investments) points out that the distribution of price / earnings multiples within the S&P 500 index is at its tightest level for 25 years. Or to put it in plainer English, this is the worst value opportunity set within the US stock market for a quarter of a century. James Montier of GMO agrees, calling it a “hideous opportunity set” for investors.

As you toil at getting rich off game or app, know your chances are better buying a lottery ticket.

We need a real estate crash to get the space freed up so people can start making things again.  the problem with capitalism is it brings such poverty and injustice wherever it raises its ugly head.

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