"First-quarter earnings so far have been very strong, outpacing even the rosy expectations from Wall Street and that's a trend that's expected to continue for all of 2021. S&P 500 companies are on pace for one of the best quarters of positive earnings surprises on record."
Headline, Axios, April 19, 2021
The economy is a coiled spring, ready to bust loose.
Enjoy the moment.
People have money to spend and the desire to spend it.
A friend who owns a fine dining restaurant tells me that reservations and business are double the April business two years ago, in April, 2019, when everyone thought everything was great. He also tells me he cannot find servers to come to work. Too many people are getting too much money from unemployment to want to come back to work. "A server on a short shift got $350 in tips two nights ago," he said. People are tipping well, he pays well above state minimum wage, and he still can't get enough help.
The asset markets are up sharply, and the wealth-effect economists write about changes the outlook of consumers and investors. People "anchor" a certain idea of wealth equilibrium in their minds. Their house is worth XXXX. Their investments are worth XXXX. If asset prices are up above that level, consumers get that feeling gamblers have of "playing with the casino's money." It was "found money"--extra--and there to be spent.
There is a lot of that feeling going around at every income level except the very lowest.
Banks just announced surprisingly great earnings. The loan losses they expected came in low; enough businesses that needed money to stay afloat got some. Observers gasped at the willingness of the Fed to create liquidity in response to the financial crisis of 2008-2009. This time is many times bigger. The Fed will do "whatever it takes" to save the economy.
There was a time, 90 years ago, when the Treasury Secretary under Hoover, Andrew Mellon, said that bad times were necessary.
Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.
That was then.
Stock market investors feel confident. Yes, the markets might "feel high," but the future is bright and the government won't let anything go wrong and stay wrong. Investors learned this lesson, twice, in March 2009 and March 2020. In 2009, banks were failing and scrambling for merger partners. Supposed-AAA credits, AIG and General Electric, were on the verge of insolvency. Homeowners realized that they owed more money on their homes than their homes were worth. Mortgages on those homes were un-sellable. The Fed stepped in, changing the mark-to-market rules for banks, which allowed them to value those mortgages assets for what they were "really worth," in an orderly market. After a false start when Congress said no to helping out and the markets fell several thousand points on the Dow, Congress stepped up.
Bingo! The market rebounded. People who chickened out of the market in March, 2009 lost out.
Same thing in March, 2020, only bigger and better. Looking ahead to major recession markets dropped for a month, then investors remembered: The Fed had their back. Easy money and lots of it, to buy up whatever assets got too cheap. This time Congress didn't hesitate. Republicans in Congress were willing to spend borrowed money to bail out Trump's economy. Democrats had a chance to do to Trump what Republicans did to Obama: Slow the recovery and blame the misery on the president. It was a golden opportunity to get robust congressional majorities, and it worked brilliantly for Republicans in the 2010 election. Democrats didn't do it. They, too, voted for spending.
The result: Consumers have pent up demand and money to spend. Businesses are looking ahead to increased business activity, Investors feel rich and secure. Happy days are here again.
Every experience I have with market sentiment like this is that it is the prelude to something unpleasant. Good times sow the excesses that are the seeds of misery. But for now, it is springtime in America.
For readers who want to feel the musical emotion of this moment, here is a song by The Vogues, in 1966, another economic "good time" in America. Lyndon Johnson and the Congress were spending money on both "guns and butter." The song celebrates a five o'clock moment of freedom from a workday. The COVID vaccine gives a parallel feeling of liberation and money in one's pocket.
Click the song. Enjoy this moment. It may not last forever. Nothing does.
. . . it's a five o'clock world when the whistle blows
No-one owns a piece of my time
And there's a long-haired girl who waits, I know
To ease my troubled mind, yeah!
A-da-lay-ee-ee (up, up, up!)
4 comments:
"Too many people are getting too much money from unemployment to want to come back to work..."?
Really? Where is the proof? There could be several reasons, beginning with the fact that the pandemic is still going strong and service jobs are the front lines.
I'd stay home for a while longer, wouldn't you?
Re; too many people making too much on unemployment.
With respect, Peter, your friend sounds as if he is parroting Republican talking points in opposition to economic stimulation.
I do agree with your contention that this euphoria won't last, and I suspect the next implosion will be bigger more severe than the last. A smallish to medium sized house here In Gold Hill just sold in one day for $379,000. A friend who does custom floors is doing a 1950s 3 Bdrm 1 bath home below the Boulevard in Ashand which just sold for $599,000. Those kind of numbers simply cannot be sustained, and when the Bubble pops, as it inevitably will, it's going to be a real Bang !
I agree with the letter writers that something is amiss with that unemployment statement. And you don't get the unemployment if you are working, of course. So, so what?
Many of us are feeling flush with the $1400 and are spending it a bit, but now are trying to stop and save some of it. That may be the last one we get.
I had hoped my latest check would largely go into Savings, but the unexpected, as expected ate most of it. I have a decent income, but Saving a good part of it seems to get harder every year. If I didn't know better, I'd think I had been eating out at Peter's friends "fine dining establishment.
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