The Rabbit Ears of Unhappy US Taxpayers

Everyone Is Broke [Morning Reckoning] November 02, 2023 [WEBSITE]( | [UNSUBSCRIBE]( The Rabbit Ears of Unhappy US Taxpayers Asti, Northern Italy November 02, 2023 [Sean Ring] SEAN RING Good morning , I’ve lived in Italy for 19 months and still can’t speak Italian fluently. My six-year-old son, Micah, speaks excellent Italian, and his friends’ parents, my peers, are more than happy to ignore me and talk with him. It saves me a job. But to improve, I started translating words and phrases I often use. It’s a common strategy to improve speaking ability. A few Fridays ago, I stood in Piazza San Secondo with my Brazilian-Italian friend, Angelo, whose son plays with Micah. We speak terrible Italian to each other because he’s got to translate his Brazilian-Portuguese into Italian, and I’ve got to splutter through English in my head before any semblance of Italian comes out. We both just bought houses and got onto the subject of finances. Shaking our heads, Angelo asked me how I was doing. I said, “Niente ma orecchie di coniglio.” He looked at me quizzically, then his eyes widened, and then he burst out laughing. Nothing but rabbit ears. A man with rabbit ears. Every married man knows exactly what this phrase means mere seconds after hearing it for the first time. Usually, it’s with respect to a spendthrift wife, a recently made tuition payment, or a gigantic bar bill. But now, married or not, male or female, we’re all up shit’s creek together. While Paul Krugman can’t understand why people are so down on this allegedly thrilling economy, it’s easy to see why. Everyone’s already broke. A Few Facts First A few days ago, Visual Capitalist published [this excellent infographic on Global Wealth](. I’m only showing the top ten. Click on the link to see the whole thing. [Click here]( to see a larger version of the image above The two stats used are mean and median. Mean is a simple average. We take the total wealth and divide it by the total number of adults. However, averages are prone to big outliers. In this case, Warren and Charlie, Kim and Kylie, LeBron and Magic. These billionaires pull up the average. That is, the number is positively skewed. In the US’s case, the mean is much, much higher than the median partly because of the wealth inequality inherent in a capitalist economy and mostly because of the naked cronyism, enabled by an extravagant central bank and actioned by an irresponsible Congress, that passes for capitalism in America nowadays. Right now, the average adult has about a $551,400 net worth. Not bad. But the median US adult — the one in the middle of the pack - has only a $107,700 net worth. From [Visual Capitalist]( Many experts believe that median wealth provides the most accurate picture of wealth since it identifies the middle point of a dataset, with half of the data points above this number, and half falling below it. In this way, it is less impacted by extreme values and gives a good representation of the “middle of the pack.” The number of US adults is 257 million, assuming Visual Capitalist used the 2020 census and counted over-18s as adults. If that’s the case, 128.5 million adults have less than $107,700. And most of that $107,700 will probably be home equity. When you hear about “the hollowing out of the middle class,” this is precisely what people mean. But that’s not all. Let’s look at the big three economic numbers: GDP growth, inflation rate, and unemployment rate. For this, we’ll enlist the help of John Williams of [Shadow Government Statistics](. GDP Growth My friend and colleague Doug Hill posted this on our editorial channel, and I just laughed. First, I had forgotten about John Williams. He’s a Reagan-era economist who was disgusted with how the USG fudged the numbers. Williams became very popular after the 2008 crash. Here’s his estimate of GDP versus what the USG tells us: [Williams writes]( The SGS-Alternate GDP reflects the inflation-adjusted, or real, year-to-year GDP change, adjusted for distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias to official reporting. Concisely, Williams’ estimate of US GDP growth hasn’t registered a positive number since before Covid. So the whole “economy is growing” fairy tale turns out to be just that: a fairy tale. [[LEAKED MEMO] AI Opportunity]( A leaked memo from Google on AI could prove that it's [the biggest opportunity of the decade](. [Click here to learn more]( Silicon Valley insider, James Altucher, shows that a tiny AI company could be in the crosshairs of major NASDAQ players — and [a buyout deal]( could be announced at any moment. And if you don’t get in this stock before a potential deal is announced... You’ll miss out for good. Take a look at this research, and [this urgent buy alert]( before it’s too late. [LEARN MORE]( Inflation Rate While we were panicking about a 9.2% inflation rate, Williams was decidedly more pessimistic: [chart] [According to Williams:]( The ShadowStats Alternative CPI-U measures are attempts at adjusting reported CPI-U inflation for the impact of methodological change of recent decades designed to move the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living. At its peak, Williams had inflation closer to 17%. Right now, his work suggests that inflation is still in double digits. That’s a claim many would agree with. Unemployment Rate And unemployment isn’t nearly as rosy as Krugman thinks. [chart] We’re still hovering around Depression-era numbers if you believe Williams. Many people do. [Williams explains (bolds mine):]( The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers. The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment. But the USG’s efforts to fix the situation border on the farcical. Rearranging the Deck Chairs on the Titanic Before I get to the USG, let’s enjoy a bit of comedy. No, not from Paul Krugman. We’ve abused that privilege enough. This comes from Greg Ip, former Fed watcher and now editor at The Wall Street Journal. In his [Capital Account column]( the sagacious Ip wrote this: I suspect a lot of pessimism about the economy is “referred pain.” Just as part of your body can hurt because of injury to another, pessimism about the economy may reflect dissatisfaction with the country as a whole. Lately, there has been a lot to be dissatisfied about: intensifying political and cultural conflict and intolerance, the pandemic, the border, mass shootings, crime, war in Ukraine and now the war in the Middle East. In other words, Americans are so worried about the wider world that they feel it in their wallets. Really? In my experience, most Americans don’t give a rat’s ass about countries they can’t find on a map… But they are incredibly astute about how and when their government is picking their pockets. And just when you thought you were getting relief that Congress has forgotten about Ukraine, along comes Israel. [Zero Hedge]( summarized it succinctly: - The government will run out of money (again) in roughly two weeks, requiring Congress to act (again). - According to Democrats and GOP Neocons such as Mitch McConnell and Lindsey Graham, America needs to send billions of taxpayer funds to both Israel and Ukraine, and won't consider any legislation that doesn't combine the two. - House Republicans under newly minted Speaker Mike Johnson (R-LA), as well as a group of Senate Republicans, want Israel aid separated from Ukraine aid, while the Biden White House wants to jam a $105 billion foreign aid package ($14B to Israel, $60B to Ukraine) through Congress. - The House's plan (if they can even pass it) to separate Israel aid from Ukraine aid is DOA in the Senate, while both the Senate's combined package and the Biden admin's package is DOA in the House. - The House and the Senate also need to pass 12 appropriations measures for 2024, or face a 1% across-the-board cut on defense and nondefense spending, per the debt ceiling bill passed earlier this year. In an update, Biden already vetoed the House bill that would have (GASP!) separated Israel from Ukraine. But the real reason Biden was pissed off was that the GOP planned to offset $14.3 billion in aid to Israel by reducing the IRS's roughly $60 billion boost from the Inflation Reduction Act ($80 billion less negotiated cuts). I have to say, “Nice try, Mr. Speaker. Well played.” But what I don’t see is any help for everyday Americans. Where’s a middle-class tax cut? Where’s relief for Maui or East Palestine? And where the hell is increased funding for the border? All these taxpayer dollars are going out of the country, and none is going for inward investment. Wrap Up Unless and until the citizenry wakes up, this will continue. If I were Joke Biden, I’d take advantage until I came out of the Oval Office feet first. As for the Congressional gerontocracy, they’ll keep going until they get Feinsteined. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [Nvidia’s Supplier Reveals “A.I. Crown Jewel”]( A.I. investors…get ready: Because a little-known supplier just received a GIGANTIC order from Nvidia. In short: This supplier is planning to pump out 2,000,000 units of a critical piece of tech which I call… [“The A.I. Crown Jewel”]( [Click here to learn more]( It’s one of the biggest production runs in technology history. And it’s part of the reason why Barrons says this supplier could see $100 BILLION in sales by 2025. So if you want to see how to get in front of this fortune-building wave – before it’s too late – [then click here now](. [LEARN MORE]( In Case You Missed It… The Bears are Eating Your Tech Stocks Greg Guenthner, Editor [Greg Guenthner] GREG GUENTHNER Good Morning Reader, The stock market continues to drag investors into a pit of despair as the major averages post another ugly week of losses. The Nasdaq took the brunt of the damage, tumbling more than 5% in just ten trading days as the once bulletproof mega-cap tech stocks began to unravel. The bears have now come for the biggest and best stocks on the market, with major players like Alphabet Inc. (GOOG) suffering double-digit damage. At first, it looked as if some of the more beaten-down growth names might find some relief while the mega-caps underperformed. But many of these stocks continue to find new lows as distribution dominates the tape. Nowhere to run, nowhere to hide… Naturally, doom and gloom predictions are flooding the airwaves as the market continues its fall slump. It’s spooky season — and slippery stocks are starting to scare the pants off investors. The absence of new highs, poor breadth, and sluggish action is taking its toll on the bulls. It’s gotten so gloomy out there that World War 3 and Black Monday have been trending on social media. Investors are on the verge of panic every weekend, expecting cataclysmic events to rip through the markets, sparking a historic crash. But is the situation for stocks really that grim? Not yet… While we’ve yet to witness a significant breakdown, the averages remain mired in a choppy, sideways trend. Last week’s action was especially difficult. The S&P lost 2.5% to close at its lows on Friday, hitting levels we haven’t seen since late May. The summer melt up has melted down as the large-cap index has dropped more than 10% from its highs. But if you have even a drop of contrarian blood coursing through your veins, you’re probably on the lookout for a bounce this week. We’re entering a seasonally strong period for stocks, sentiment is in the gutter, and the averages are near obvious support levels. Push the news, panic, and upcoming Fed meeting out of your head for a moment. Instead of focusing on the noise, let’s instead plot out a couple of potential scenarios for stocks as November approaches. What Happens Next? First up: the unexpected rally. We could see a quick washout below key support to set up an end-of-year rally. In this scenario, the major averages and some of the more popular stocks undercut support (their respective 200-day moving averages or other obvious, horizontal levels). Sellers then come for the strong names and mega-caps as these are usually the last lines of defense and “safe havens” for the bulls. They successfully scare some weak hands out of their positions, yet fail to crater the market. Stocks find support, bottom out, and begin to attract these same sold-out bulls into a year-end push higher. The next scenario is where it turns ugly. If markets continue to suffer as yields and the dollar push higher, this drawdown could morph into the beginning of a major leg lower. That means we’ll see breakdowns expand and ripple through the market, tearing down leading stocks and everything in between. All the angst and worry built up over the past few weeks will be confirmed by poor earnings reactions – and maybe even a little panic following the Wednesday release of the latest Fed minutes. All major moves lower begin with what appears to be a standard market pullback, so the move will likely catch the remaining bulls off guard as the averages defy seasonality and an end-of-year melt up turns into a full blown meltdown. Don’t Jump the Gun We’ve experienced choppy markets for several weeks. These conditions won’t last forever. With the averages at or near important inflection points, I expect stocks will break one way or the other sooner rather than later. But there are no guarantees — and mistakes are incredibly costly in difficult trading environments. When markets are trending, you can get it wrong and still make money. A little tailwind from the prevailing trend will help cover up poor decisions. Heck, you might even still book decent gains if you underperform during especially strong periods. Don’t get me wrong — there are techniques and strategies you can use to make money whether the market is moving up, down, or sideways. But trying to “get in early” on breakouts or breakdowns before the market tips its hand is a recipe for disaster. Intraday swings and fake-outs are commonplace these days, while trending days are few and far between. Instead of follow-through, we’re stuck with big gaps higher or lower as traders try to wrap their minds around the endless list of risks attacking their favorite stocks. I know how frustrating it is out there. It’s especially difficult to sit on your hands waiting for more confirmation before pulling the trigger on new trades. But that’s exactly what you have to do in this environment. When false breakouts and choppy conditions are prevalent, successful traders know to pull back. Protecting capital is the top priority! There’s obviously a ton of noise out there right now, which means it’s more important than ever to tune it out and remain focused on your trading goals. 3 Ways to Beat the Chop As the market continues to lurch along, remember the rules that guide us in these conditions: We’ll let price lead the way. Don’t get too caught up in the scary headlines. Price will tell us how this market will behave in the weeks and months ahead — the narratives won’t! Choppy action means fewer trades. Taking a step back from a choppy market will allow you to protect your capital, limit drawdowns due to failed breakouts, and allow you to jump on any new opportunities when they emerge due to your large cash position. Cash is a trade! Breakeven is winning in this market. Passive investors are watching their losses grow as stocks continue to retreat from their summer highs. So-called “growth investors” are down big as many of the prominent names in this group are down as much as 50% from their year-to-date highs. They have a long way to go before they will make those losses back. By limiting your drawdowns, you’ll be miles ahead of the herd when this market finally picks a direction. If a trade’s not working, cut it loose. Small losses won’t kill you (but big ones just might!) Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Sean Ring] [Sean Ring, CAIA, FRM and CMT]( is a former banker and financial educator and is the editor of the Rude Awakening. Sean has trained interns and graduates from Goldman Sachs, Morgan Stanley, Citi, Bank of America, Standard Chartered Bank, DBS (Singapore), the Abu Dhabi Investment Authority (ADIA), Bank Indonesia (the central bank), HSBC, Barclays, RBS, and BlackRock. He knows the global economy is being corrupted by forces that most people can't understand and has used his unique and worldly experiences to help people navigate the markets. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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