The Stock Market Isn't America

Authored by Patrick Watson via MauldinEconomics.com,

Did the recent 10% drop in the stock market bother you? Let me take a wild guess: it’s because you have money in stocks. No one likes seeing their net worth decline.

You might feel comforted that we’re all in this together. Don’t be… because we’re not. Roughly half of all American households don’t own stocks.

Hence, it’s a mistake to think the stock market’s health says much about the nation’s economic health. The nation is its people, and many had little to celebrate even before the stock market dropped.

Investors ignore that fact at their own peril.

Photo: Getty Images

Zero Exposure

So who does own stocks? It’s a surprisingly tricky question, since we have so many ownership structures and pooled investment vehicles. You have to drill through the layers to find the ultimate owners.

The first surprise: A big slice of the US stock market isn’t American at all. Foreigners own about 35% of US stocks by value—and their ownership grew considerably over the last few decades.


Image: taxnotes.com

Some of these foreign shareholders are wealthy individuals, others are corporations or investment funds. They own far more of our stock market than ordinary Americans do.

About half of US households have zero exposure to the stock market: no stocks, no mutual funds, no 401(k), no IRA, nothing.

According to research by New York University economist Edward Wolff, some 84% of the stocks owned by Americans belong to the wealthiest 10% of households.

Subtract that 10%, and subtract the 50% who own no stocks, the remaining 40% of Americans split about 15% of the stock market. For many, their investment is negligible—maybe a few hundred dollars in an old 401(k). Others have a big part of their net worth tied up in stocks. Maybe you’re in that group.

But a solid majority of the American population feels no direct impact from stock market performance.

The inverse is different. Long-term stock market performance depends heavily on the US population’s economic health. Stocks are businesses that need customers, so how are the customers doing?

Everybody Isn’t Average

Expected wage growth is contributing to the stock market’s recent weakness. People think it signals inflation, which will raise interest rates and make stocks less attractive to yield-seeking investors.

The latest data do indeed show average wages up slightly. But as we’ve seen, “average” is not the same as “everybody.” My friend Michael Lebowitz published some good charts on this and other consumer issues last week.

The government’s average wage growth numbers include both workers and supervisors. Looking at them separately shows a whole different picture since the last recession.


Image: realinvestmentadvice.com

Since 2008, average wage growth for workers, some 80% of the total, has trended lower even as supervisor wage growth trended higher.

That means rising wages haven’t been evenly distributed. The top one-fifth are getting almost all the wage growth while the bottom four-fifths see flat or declining wage growth.

If your business plan depends on more consumers having more money to spend, this is a problem. Yes, some consumers are enjoying wage growth, but most are not.

Where else might people draw spending money? They can take it out of savings if they have any. But that’s getting harder too.


Image: realinvestmentadvice.com

Inflation-adjusted savings as a percentage of disposable income have been dropping since the 1970s. They bounced in the last recession but fell again after it ended. Now savings are near an all-time 2% low.

Note, this data includes wealthy people whose saving ability is much higher than average. So there’s a large group of lower-income people whose savings are already well below 2% of their disposable income.

If you can’t increase your spending with higher wages or pull cash out of savings, the only other option is debt. That usually means credit cards. Here, we finally see some growth.


Image: realinvestmentadvice.com

Americans presently carry about $765 billion in credit card debt. That represents money already spent to buy goods and services.

Comparing that debt to the average disposable personal income, we find the typical American carries credit card balances equal to about 6% of DPI. That number jumped sharply in the last recession but never came back down. It’s kept growing, although at a slower rate.

So the average American’s credit card balance, as a percentage of disposable income, is more than twice as much as his or her savings.

Combined with flat or declining wage growth for most workers, does this look like a population poised to go on a spending spree? I don’t think so.

And it doesn’t seem all that positive for most stocks.


Photo: Getty Images

Balance

We’ve seen tremendous stock market growth in the last decade, but consumer income growth has been much less impressive. Can this continue?

For a while, yes. Just look at China, where a booming stock market has coexisted with a vast, impoverished interior for years.

But even China probably can’t do it indefinitely. On a long enough time horizon, a nation’s stock market reflects its consumer economy. Production and consumption must balance.

The US stock market has grown faster than the economy, by a wide margin. That can’t go on forever. The scale will correct at some point - probably by swinging the other way, with the economy growing faster than stocks for an extended time. That part of the cycle won’t be fun for stock investors.

Are we there yet?

No one knows… but it’s fair to say we are getting closer.

*  *  *

Before I go, I want to mention the current issue of Macro Growth & Income Alert because it sort of ties in with what I just talked about. In it, my colleague Robert Ross and I are discussing a phenomenon related to the Great Recession. The Millennials, many of whom came of age in that period of economic scarcity, have been negatively affecting a certain sector due to their cautious approach.

But that trend is now reversing, and we’re right in there with a recommendation of a company that has maximum exposure to the Millennial market in its sector. I suggest you give our service a risk-free try. You have 90 days to see if it’s right for you—if not, simply cancel and get all your money back.

Click here to get your own free Connecting the Dots subscription. You can also follow me on Twitter: @PatrickW.

Comments

Zhaupka Sat, 02/24/2018 - 13:20 Permalink

The number of humans the United States Government Supports:

Receivers (non-workers):
Public Welfare: 135,780,000
Military: 1,281,900
Military Support: 641,428
Civilian .gov Emp. 21,995,000

Total Receivers (Non Workers): 159,698,328

Givers (actual workers):
Corp. Emp. 125,440,000 million people

Total U.S. Working Population: 243,000,000

Foreign U.S. Workers: 42,138,328

The staggering number of people working either for, with, or in U.S. Government(s) / U.S. Military .

Corrections, Please.

Parrotile Zhaupka Sat, 02/24/2018 - 18:28 Permalink

It may be even more depressing when you consider that a portion of those "actual workers" may be in non-productive roles - such as positions mandated by Governmental (Federal, State or Local) decree / "regulation".

While such jobs are "legally" necessary, their output adds nothing to the employer's "bottom line".

In reply to by Zhaupka

Easyp Sat, 02/24/2018 - 13:28 Permalink

I own 3 US stocks one oil exploration in Colombia the other two silver miners.  Should the $ decline sharply I would expect commodity prices to go up so the economy not a big concern.

JibjeResearch Sat, 02/24/2018 - 13:33 Permalink

The American public just don't get it.  We are in a globalization period, and only about the top 20% of Americans are considered rich and have assets. 

Trump wants protectionism, but he can't protect shits because the majority of Americans don't own shits.  This is another reason why protectionism is not best for the average Americans.

 

This applies to me (my being and how I approach life) and all Americans must absorb it and make good use of it.

1.  People put road blocks in front of you, just don't retaliate because negativity breeds negativity.  It will only bring you down.

2.  Instead, go left, right, back, up, or down.  There are many good people all over the world, you just have to go search for them and ask for help.  To do this, drop the word nationalism, and be open minded, and go where you can find a job.  Survival is your first duty.  Take the opportunity to survive and don't waste time fighting useless battle/war.

 

If anyone ( or organization) can do those two things, life will be good.  I speak from my experience, and that is how I got to be in the top 10% in America from a dirt poor war refugee from Cambodia.

 

I am an American :)

DeathMerchant JibjeResearch Sat, 02/24/2018 - 13:54 Permalink

"The American public just don't get it.  We are in a globalization period "  Oh we get it alright. The UN and the rest of the globalist assholes, which includes greedy American corporations, have decided that the US middle class and the peons of the world should all be in the same class in order to establish a dependent, controllable world citizenry. You and your ideas are part of the problem, not the solution for Americans. The opportunities you have been exposed to and the success that you have had should have gone to an American citizen. Of course you want to drop the word nationalism because to not drop it would mean that you would still be in that shit hole country wondering when the next Pol Pot was coming along. People are awakening to the scourge of globalism and the chaos that it brings.

In reply to by JibjeResearch

JibjeResearch DeathMerchant Sat, 02/24/2018 - 14:06 Permalink

I was born in a Buddhist country.  The Mormon church sponsored my family (baptized us).  I am grateful for them regardless of what I hear a few of those dummies did.

I'm grateful to all Americans because I was on food stamp through K12.

I gave 10 years time in the Army.

Now, I'll give my experience on how I got to the top 10% in America.

And what I went through, any American could have done the same thing and be well off financially, mentally, and physically.

 

One reason I got here is because DoD laid waste to Cambodia.  I have no hate for it, I only want to survive wherever I can ... because the elites (Americans and Non Americans) don't care about me and the poor people, for now it's America.

Best Wishes :)

In reply to by DeathMerchant

HRH of Aquitaine 2.0 Sat, 02/24/2018 - 14:04 Permalink

Listened to Molyneux's 2-hour discussion about the fall of Rome and comparible attributes found in the US, today. Thanks to the ZHer that posted the link, yesterday. I hate to say this, but it doesn't look good for the USSA. The US currency has been debased, there is little moral structure, decadence and hedonism are what constitute high art and entertainment, and many service members serving in the armed forces are not natural born citizens (many serve to gain citizenship and their first loyalty is not to the US). The huge layers of bureacracies that often do not serve the people they claim to serve but only serve themselves due to generous pensions and benefits. It seems the US is not the first country to have gone down the welfare path and ended up finding themselves invaded, with weak borders. Once those free welfare benefits are cut off, that is when shit will really hit the fan.

JibjeResearch HRH of Aquitaine 2.0 Sat, 02/24/2018 - 14:13 Permalink

Yes, we follows Rome blueprint.

I don't think the general public can force a path change; however, some Americans can protect themselves by doing something to gain wealth.  Wealth is the only thing that will keep anyone from suffering or suffering the harshness of life the most.

DoD still have more natural born Americans serving the force; and most of them served to make a living first.  If anyone truly care for the USA and Americans, he/she will debate/fight to preserve the original Constitution.

This loyalty issue is beyond the DoD, it's in the States headquarters and DC.

In reply to by HRH of Aquitaine 2.0

HRH of Aquitaine 2.0 JibjeResearch Sat, 02/24/2018 - 14:21 Permalink

It's depressing. The national debt, the foreign influence on DC. I agree about having wealth as a buffer. I have been a PM stacker for years. Minimal debt other than my house. I guess I am better off than most and aware so that nothing that happens will surprise me.

If you look at the rule of law, it is two-tiered, at this point. One legal system for you and me, another for the oligarchs.

I see a financial crisis as the breaking point. I wouldn't have a problem with the US breaking up into regions. I am in FEMA Region IX.

In reply to by JibjeResearch

JibjeResearch HRH of Aquitaine 2.0 Sat, 02/24/2018 - 14:34 Permalink

I hear you loud and clear; however, there are ways for all Americans to make some correction.  It's not too late to make some positive gain.

And I speak/preach the same shits in here... and some laugh at me, but I don't care..

1. Cryptos: BTC, BCH, BTG, BCD, BCA, LTC, LCC, ETH

2. Stocks: My choice is Nokia, and/or other 5G/IoT Stocks, cheap with Dividend because the next 5 years will be all about 5G network and IoT things.

3. Metals: Gold/Silver.  Physical metals and able hand carried.

4. Property: for investment

5. Cash: some for daily use.

No all American can get all those things, but just do the best we can, and hope for the best.  We all have to hedge accordingly to beat the Elites.  They don't care about the average Joe.  The Joes have to work and find a way to beat them.  The hedging strategy above is my way, it could be wrong, but I got to the top 10% from it; thus, at least, it's right so far.  And, I also hope for the best.  We all need some luck.

 

Best Wishes :)

Congrats on your success so far... and keep it that way :)

In reply to by HRH of Aquitaine 2.0

JibjeResearch Scornd Sat, 02/24/2018 - 14:47 Permalink

Yes, the Elites have experience over the average Joe.  But I did it.  See my investment strategy above ...  It's not a guarantee, but it pushed me above top 10% so far ... and, if my portfolio takes a dump, I'll fall back down the financial ladder.

Nothing is 100% sure, but not trying is 100% a wrong decision.

Best Wishes :)

In reply to by Scornd

ElTerco Sat, 02/24/2018 - 14:12 Permalink

Sorry, it is hard to believe any of this article when the basic math is incorrect.

According to the article:

Foreign owned = 35%

US owned 65% * 85% top 10% = ~54.5%

US owned 65% * 15% bot 90% = ~10.5%, not 15% as stated in the article.

gmak Sat, 02/24/2018 - 14:23 Permalink

"Roughly half of American households don't own any stocks..."  Too bad about those pesky pension funds that they're counting on, right?

JibjeResearch buzzsaw99 Sat, 02/24/2018 - 14:40 Permalink

Roughly speaking, the sum of debt and assets must be positive in these levels (in America).  A top 1% in America is very highly likely to be top 0.1% in the world.  The goal for everybody is to be able to travel anywhere in our world without any financial issues.

1. top 10% , $1.25 Millions

2. top 5% , $2.5 Millions

3. top 1%, $12 Millions ..

And, this is only one definition ....

In reply to by buzzsaw99

adr Sat, 02/24/2018 - 14:46 Permalink

The stock market is always saved at any cost because how much money does Jeff Bezos and Elon Musk have if Tesla and Amazon go to zero?

The answer is a whole lot less than I do. Bezos and Musk possess zero skills of value, other than running a government sponsored scam.

Do you remember those team building exercises like getting everyone over a wall, building a bridge, etc.

I'd like to see what happens when you take the CEOs of the top 50 corporations by value and tell them to complete a task that requires skill and teamwork to accomplish. I bet they would all be dead before they completed task one.