The muffled tongue of Big Ben tolled nine by the clock as the cortege left the palace, but on history’s clock it was sunset, and the sun of the old world was setting in a dying blaze of splendour never to be seen again.
Barbara Tuchman, The Guns of August
Can the FTSE 100 rouse itself from this August torpor to break 7,000 again? It closed Friday at 6,793. That was its best closing high since 16 July 2016. But this market is like a junkie. It needs to score a hit to make a new high. Where will the next hit come from?
Friday’s US payrolls data aren’t enough. There’s too much garbage in the numbers. To much rejoicing and fanfare, the US Bureau of Labour Statistics (BLS) announced that the US economy added 255,000 new jobs in July. It also announced that the official unemployment rate was 4.9%.
To much wailing and gnashing of teeth, it reluctantly revealed that the labour force participation rate was 62.6% – a 38-year low. Lamentations.
Do you believe me now that globalisation, automation, and demography are all conspiring to push more people out of meaningful fulltime work than ever before? And politicians – with publicly funded defined-benefit pensions – wonder why people are angry. In America, there are over 94 million people not even in the labour force anymore.
Those people don’t figure in the headline calculation of the US unemployment rate. The BLS keeps a special statistic called “U-6” in which those people count. That measurement of US unemployment climbed from 9.6% in June to 9.7% in July. Not so rosy, is it?
One more fact on that. If those unemployed Americans had their own country – let’s call it the State of Unemployment of America – it would be the 13th largest country in the world, according to the latest official population statistics. It would be sandwiched between Vietnam (at 14th) and the Philippines (at 12th.). It’s a whole nation of unemployed, largely thanks to globalisation, automation, and a central government run to benefit the interests of the financial industry.
And America has it good compared to parts of southern Europe. Italy, Spain, and Portugal all suffer from high youth unemployment. The cold dead head of the state has killed the part of the economy that creates jobs. That and an economic arrangement in the European Union which favours German industry above all else.
But let’s not get into all that on a Monday. Besides, the S&P 500 is up 19.3% since its February lows. The Dow Jones Industrials is itself up 18.4%. At the point end of the American stockmarket, a small cadre of big blue chips are on the receiving end of huge capital flows. Is it a market with any breadth, though?
I’ll come back to that tomorrow. Specifically, a host of billionaires and hedge fund managers have spoken quite publicly about their fears in the market. Stocks… bonds… gilts… US Treasuries… nothing looks cheap. But then, isn’t that what happens when interest rates everywhere are at historic lows?
Financial assets have floated much higher on a sea of new central bank credit. But down on the ground in the real economy, things look much different. Thinking about it this morning reminded me of a great quotation from Barbara Tuchman’s book The Guns of August. You’ll find it at the top of today’s letter.
She wrote about Europe in May 1910. It was at the funeral of Edward VII. The royal families of all of Europe were there to mourn. From over 70 countries they came, all one big happy family. And for the last time.
The Victorian Equilibrium had already begun to come to an end by the time Edward died. Europe’s institutions and the world’s money system were about to undergo great stress and change too. Three years later the Federal Reserve would be created in the US. Its reign may end in the next crisis.
Category: Market updates