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Wien's World: Another Billionaire Detached From Society
Submitted by Lance Roberts via STA Wealth Management,
Byron Wien, Vice Chairman of Blackstone Advisory Partners, LP and senior advisor to the firm, recently penned an interesting article entitled "Exploring 4 Myths."
Within the first part of the article Byron discusses the viewpoint of the decline of American exceptionalism:
"There are some good reasons for this belief. In 1947 America accounted for half of the world’s GDP; that percentage has declined to 24% now, but the global GDP is much larger. Europe and Asia, which were devastated after the war, have fully recovered. China has risen to become the second largest economy in the world from being virtually pre-industrial in the 1940s. There is a widespread belief that the mobility of Americans has declined: children born to those in the bottom two quintiles of income are likely to remain there, and the same is true for the top two quintiles. Even though America boasts many of the best universities in the world, our public school system has produced disappointing results. The United States spends more per pupil than only three other countries (Norway, Switzerland and Luxembourg), according to an OECD study of 34 systems, yet it is in the middle of the pack in reading and in the bottom half in science and mathematics. There are many other measures that would support the view that America is no longer the “exceptional” country it once was, but I thought I would explore whether there were some offsetting positives that might result in a different conclusion."
The decline of American exceptionalism is due to several factors that can never be replicated. Following World War II, there was little left of Europe and Japan in terms of manufacturing and industrial capacity. The U.S. was the beneficiary to a world ravaged by the war that needed rebuilding. However, as the world matured and became self-sufficient once again, that manufacturing "hub" shifted to lower cost labor sources. As globalization, due to increased efficiencies and communications due to technology, gained traction the need for America's "exceptionalism" became much less important. The chase for financial profits at the expense of real economic prosperity became the new "American dream." This can be clearly seen by the chart below of corporate profits as a percentage of wages as compared to GDP.
However, the advent of financial engineering and the chase for corporate profitability beginning in the 1990's has been a huge boon for stock market asset prices.
This is why Byron's supporting evidence that America remains exceptional is based solely on the financial components of the American economy:
- Stock market has risen by over 200%
- Dollar has risen sharply (only because the rest of the world has won the "crash the currency" game)
- GDP is 12.9% above its 2009 trough (sounds much better than 2.15% annual growth)
- Residential construction and exports are higher than those of the Europe and Japan
- Unemployment has declined significantly (he ignores shrinkage of labor force participation)
- US accounts for 52% of worlds publicly traded equities
- EPS growth has been the best in the U.S. (Thanks to massive stock buybacks due to low interest leverage)
All of these factors, while certainly positives, are NOT what makes a country exceptional. This is particularly the case when all of these factors, in one form or another, have been impacted by massive monetary interventions or Governmental support programs. Artificial boosts in activity are not the same as organic growth.
However, an exceptional economy, one where the vast majority of its citizenship is benefitting from its increase, is far different from a exceptional stock market that only benefits the top 10-20% of the populous that have liquid assets available to invest. Or, in Byron Wein's case, those in the top .01% that are directly compensated by surging assets prices. For him, in particular, a surging stock market and his "personal economy" are indeed one in the same. That is not the case for the vast majority of Americans as I discussed previously:
"While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall."
"'Savings are depleted for many households after the recession,' it found. Among those who had savings prior to 2008, 57% said they'd used up some or all of their savings in the Great Recession and its aftermath. What's more, only 39% of respondents reported having a 'rainy day' fund adequate to cover three months of expenses and only 48% of respondents said that they could not completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money."
"Of course, for those in the top-10% of wage earners - 'it's all good.'"
However, he does go on to make a reasonably "bearish" case for the financial markets:
"As we have all learned over time, sometimes painfully, an exceptional economy, just as an exceptional stock, does not always mean exceptional investment performance. Markets and stocks become overvalued, and many think the strong performance of the U.S. market over the past several years means that the indexes will have lackluster performance or even suffer a decline. The bull market has lasted 72 months; the average since 1950 has been 57 months. Investor sentiment is very optimistic, which is usually a danger sign. Interest rates are likely to trend higher, usually a market negative. Finally, earnings are important drivers of stock performance, and overall S&P 500 and company earnings estimates are being marked down. Many companies are guiding analysts to lower their estimates even further."
But then dismisses his own case with one simple argument:
"In spite of this, I believe 2015 will be a favorable year for U.S. equities, primarily because market valuation, in my view, is not excessive."
Really? With both Tobin's Q Ratio and P/E valuations pushing their second highest level in history, it is hard to suggest that valuations are not even just a little bit excessive. When a company like "GoDaddy" which has been in business for 18 years and has generated no profits is the next "hot" IPO, valuations might be just a bit optimistic.
Or, as John Hussman recently penned:
"The chart below shows the ratio of market capitalization to final sales (gross value added) for non-financial companies. (See Do the Lessons of History No Longer Apply? for a broader range of historically reliable and similarly overextended measures.)"
"It’s tempting to assume that the “normal” level of valuations has simply increased over time, and that presently rich valuations have no implications for expected stock market returns. But even a cursory examination of market returns argues otherwise. While annual market returns always vary considerably over the market cycle, stock market returns in the pre-bubble period averaged 10-12% annually as a result of the lower average level of valuations. In contrast, the S&P 500 has enjoyed average annual nominal total returns of less than 4% since the 2000 peak, and even then, has only achieved those returns thanks to a bubble advance that has taken valuations back to similar extremes."
Of course, for Byron, who directly benefits from rising asset prices, he certainly has motivation to see the silver lining to every cloud. And even if he is wrong, and asset prices plunge, we will continue to be compensated rather handsomely.
However, for the rest of working "smurfs" who are trying to "save" our way into retirement, we are not afforded such luxury. The failure to correctly assess the risk of the financial markets at this particular juncture will have a meaningful impact on the ability to meet retirement goals as projected.
The American economic and financial landscape is vastly different than it was following World War II. The wealth gap between the rich and the poor has shifted sharply to the upper 10% of the population. For that group, the economic picture is considerably brighter than for those in the bottom 80%. For Byron, whose personal net worth is in the billions, this is truly a "Picasso economy," for the majority of everyone else it is more like a "starving artist sale."
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Anyone care to lend me a billion dollars? I want to be a 'billionaire' too!
I personally look forward to the day when I get my first trillion dollar Obamabill.
let's all hope that it's two ply and super absorbent
you make the likeness yourself
That's a smear job, but it would be good to see Obama supporting the arts.
He is connected to A society, just not ours...
"let's all hope that it's two ply and super absorbent"
My guess is that the US treasury will go 100% digital. Printing money costs money. Ones and zeros of free. Everyone will just carry a EBT/Debt card issued by the gov't. Failure to comply with Gov't regulations/law? No problem, they just disable your card.
Emergency Banking act of 2021:
Immediately after his inauguration in January 2021, the President set out to rebuild confidence in the nation’s banking system. At the time, the New Depression was crippling the US economy. Many people were withdrawing their money from banks and keeping it at home. In response, the new president called a special session of Congress the day after the inauguration and declared a four-day banking holiday that shut down the banking system. The terms of the presidential proclamation specified that “no such banking institution or branch shall pay out, export, earmark, or permit the withdrawal or transfer in any manner or by any device whatsoever physical currency. All payment transfers will made using the new SUCC (Standard Univiversal Currency Card). All outstanding Cash must be turned to banks and will be exchanged for the new SUCC system.
Embrace the SUCC(K)!
They won't even have to put a security strip on it as counterfeiting will be a waste of time.
Wien left off his list the enormous monies earned by the American drug cartel, composed of the following: the DEA, the CIA, the Presidents of Mexico and the United States, big banks like HSBC and Citibank (who launder the connected drug lords' money) and of course, the NSA, now shown to use its wiretapping powers to provide the information to get independent drug dealers arrested.
Byron is not a multi-billionaire. He is indeed very rich and I wish I had his apartment. His arguments may often be flawed. And he certainly spends more time hobnobbing with the rich and powerful than with average folks.
However, the author just rehashes Hussman's arguments attempting to rebut Wien without adding anything but insults. Wien is 80 year old. Does anyone here honestly think he wouldn't try to call a crash if he saw one coming? It would be the capstone of his career. Blackstone would thank him for getting them to sell their PE investments before the debacle hit. (Of course, Blackstone has been selling like crazy for 2 years now. )
So from now on, we should all ignore anyone who has money? I suppose when the market top is in, shoeshine boys and cab drivers will tell us? John Hussman (and plenty of other bears) are pretty rich too. Are they wrong because they are short the market?
Lance's repackaged arguments plus insults do not equal cogent analysis. Hussman himself is a brilliant but modest guy who has admitted prior flaws in his analysis and tried hard to improve his models. He wouldn't stoop to the kind of crap Lance puts forth here. Hussman doesn't need to stoop to ad hominem because he lets his brilliant analysis speak for itself.
Everyone on Wall Street has an axe to grind and talks his book. It's better for people to weigh arguments on their merits rather than the personal circumstances of their proponents or opponents.
bad weather? headwinds? looks like some folks got swindled
the unsinkable, now face down and the captain's at the helm and he's waiting to drown
yeah right, cap'n will be watching the ship crash from the helicopter
The decline of American exceptionalism is due to several factors that can never be replicated.
Oligarch meme #1
In 1947 America accounted for half of the world’s GDP
WWIII should put US GDP % back on top. It's for the children.
Send some of the peasants kids to get blown apart so that we can buy new gold plated toilet paper holders to go with the gold plated toilet paper holders that we already have.
WWWIII is, ultimately, pretty much a sure thing. The USA's being on the winning side... not so much.
It was the best of times. It was the worst of times.
(something like that...).
It starts with people trying to build a better life and the government is regulating that out of existence. You dumb everything down as much as possible and have bread and circus's. Then you wonder why we're going to hell as a country......
WTF are you seeing what's happening to gold today? no, it's totally not rigged!
I guess it will be revolution, then!
Byron Wien(er) ; Jack. Ass. Hole.
Say it a 3rd time looking into a mirror and he will haunt you with bad investing advice from a disconnected point of view.
Byron Wien(er) ; Jack. Ass. Hole.
All charts are just indicating the fed reserve rate * us total debt * 1000.
Only the magic of the 1913 FRA could yield such exceptionalism.
The power to create instant money is god-like.
Byron likes the sound of his own voice.
OK I got it now...
Youre a muppet while you still have money to steal.
Once they have it all, you become a smurf.
The exceptional idea is that the United States is exceptional based upon the exceptional value of its exceptionally QE bloated equity capital markets: exceptionally moronic.
This is also what the Ivy League inculcates members of the club to propagate to the dumb and naive.
What we have is a moron bubble.
Not the first time it has ever happened either.
I believe this parasite was caught on video last year at an elite frat party of cross dressers making incredibly cruel jokes of all that got hosed by the banksters.
May he get scabies.
I know more than a few Ivy Leaguers - they are very smart but mostly in-the-box people, avid conformists in their elitism.
Some are on ZH too :) Folks here paint with a very broad brush.
But you're correct that many good short-sellers are outsiders, non-comformists and non-Ivy Leaguers. Some are Ivy Leaguers (like Jim Chanos). It's better to keep an open mind about everyone, as you suggest.
The perpetrators (bankers,governement, quasi orgs) claim ignorance while getting personally rich and people are often giving them the hall pass as if the "mistake" was innocent. What is anyones percentage individually profitting grossly on repeated mistakes of supposed ineptitude? Now who is the moron in this scenario?
We're all serfs now.
It's creeps like this guy that fostered the present day robber-baron environment.
The old Robber Barons at least produced things like autos, electricity, railroads, oil and gas, farm machinery, airplanes, ad infinitum. I personally believe the present day RBs, without the government and its licensing and regulations, cannot successfully support a monopoly. Smaller more efficient competition would eat the oligarchs alive, including old RBs, once the emphasis was off brute capital and labor intensive industries. The government chose the winners, go visit Harrah's Auto Museum in Reno and look at the different autos that were on the scene before the FDR Fed depression. Now look at what we have, last year more GM cars were on recall than were sold by them.
Today's Robber Barons, tell me again what they contribute? They are the chosen ones by government. Parasites. Same ole shit, different latrine.
ANY robber baron would be eaten alive in a TRUE market economy. the problem is that even true market economies eventually get corrupted by the robber barons so they don't have to worry about the competition as much.
but you're right, at least the old robber barrons' companies produced actual things. today...it's just gambling (a lot of which is done illegally) at fancy casinos where the chips are called 'derivatives', 'equities', 'mid-caps', 'futures', etc...so as to make things sound legit.
I suspect Mr. Wien is a typical tycoon that borrows his fortune then has others borrow enough to cover his bets.
nah, he's just a nice jewish orphan who loves everybody, just like warren does.
It's fairly simple. The top 10% have had the greatest share of equities and assets. Capital Gains taxes have been repeatedly cut since Reagan. The Fed has for over a decade been stepping directly into markets to prevent investor losses and to greatly juice their returns. Note the current raging bull market, in the face of a terribly weak main street economy. Then the top 10% tend to be in the financial sector, which is the one with the greatest compensation gains over time. Add in repeated drops in high income earner income tax levels, plus their ability to go off shore or employ tax accountents.
The deck is clearly stacked in the 10%'s favor. Many argue that they earn it, deserve it and it is the fruits of the free market. I do not hold with that idea. The Fed alone is tilting the deck and shaking all the money into the 10%'s corner. Stop manipulating interest rates and the stock markets.
No doubt a good article but exactly how would you ever skip the ultimate factor of the USA becoming the "RESERVE CURRENCY" and its unfair advantage? A game of monopoly where we control the bank and have first take on all new money that we print at will---"an exhorbitant privilege" as De Gaulle called it. If you do not know how this works then you cannot hope to understand the rest. We created a finanical empire where the empire citizens were made poor -- and the USA political powers killed our reserve currency unfair advabtaged position which is treason of its highest form.
"The decline of American exceptionalism is due to several factors that can never be replicated. Following World War II, there was little left of Europe and Japan in terms of manufacturing and industrial capacity. The U.S. was the beneficiary to a world ravaged by the war that needed rebuilding."
The exceptional US economy was not in 1947, as this article suggests, but in 1847 through the Great Depression, despite having a Civil War during that time. During the period from 1870 through the 1920's compound growth in the economy was in the order of 7%...and the reason why is clear and replicable.
- There was little government skimming.
- There was no income tax or income withholding to facilitate government skimming
- There was no Central Bank systematically stealing from producers and transfering that wealth to borrowers and bankers
- There was no 'legal tender' only a quantity of element 79 otherwise known as 'Dollar'.
The difference between then and now is ENTIRELY due to misplaced confidence in 'EXPERTS' to rule society through a government bureaucracy.
Arrest Byron. Redistribute his stolen wealth.