NORMANDY, France – “The Decline and Fall of America’s Working Class” is a subject that draws much interest.
Semi-skilled labor isn’t what it used to be. From our own simple calculation, last week, it appeared that in order to afford a typical new house and new car, a working stiff today would have to put in about twice as much time on the job as he would have 40 years ago.
“How come?” is the question most people ask. But we’ll come back with a different question in just a moment. First, a look at the markets:
Investors decided to leave their worries on the doorstep yesterday. They crossed to the sunny side of the street, with the Dow up 237 points.
How much of that buying comes from serious investors, carefully analyzing the real value of the companies they buy? Probably not much.
A report at ZeroHedge tells us that since 2010, U.S. corporations have added, net, more than $4 trillion in debt. What did they do with all that money?
They used almost all of it to buy their own stock.
Prices are set at the margin. So, even a little bit of extra buying can have a big effect on stock prices. Four trillion dollars’ worth of extra buying – coming from the corporations themselves – could account for 100%, or more, of all stock market gains over the last four years.
Whoa. What kind of crazy finance is this?
In 2011, the S&P traded in the 1,200 range. Now, it is over 2,000, which represents a capital gain of about $6 or $7 trillion. If our math is correct, every dollar of that asset price increase was purchased at a cost of about 70 cents of additional debt.
Is that a good deal?
So it appears… At least until the stock market goes down. Then, the balance sheet begins to sag on the left, where the debits are, and lightens up on the right, where the credits are.
Stock prices go down as well as up. But debt remains just where it was.
Borrowing to buy your own assets, like asking yourself for a date, is rarely very satisfying.
In the case of U.S. stocks, the next phase will likely be a transfer of wealth from the stockholders to the bondholders. That is, the stockholders will own less of the corporation; the bondholders will own more. The value of the equity will go down; the value of the debt – relatively… and assuming the corporations remain solvent – will go up.
In the Weekend Edition of Diary, our colleague Porter Stansberry discussed a way to trade this phenomenon.
But back to… “The Decline and Fall of America’s Working Class.”
We have been on this story for years. Mostly, it is a matter of curiosity. How could so many people actually get poorer during what should have been the most fabulously productive period in history?
And yet the figures – subject to much misinterpretation – and the anecdotal evidence coming from our own readers point in the same direction: The typical American man has less real, disposable income today than he had 40 or even 50 years ago. Surely, he must be feeling a little blue. Professor Noah Smith:
One big piece of news in the past couple of weeks has been the release of a new paper by recent economics Nobel winner Angus Deaton and his co-author Anne Case. The paper highlights a very disturbing trend – death rates are increasing for white people in America, especially for working-class middle-aged whites. The increase looks like it has been going on since the late 1990s.
… for white Americans with no college education, deaths have soared…
Other groups of men – Hispanic and black – live longer. Why would life expectancy be going in the opposite direction for whites? The proximate causes, according to the Deaton-Case paper, were drugs, alcohol, and suicide. But what’s behind it… why?
In 1965, Daniel Patrick Moynihan’s famous report on the “Negro Family” warned that black families were being destroyed. Out-of-wedlock babies, family breakups, poverty, drugs, violence, unemployment, prison – blacks were actually falling further and further behind whites, he noted.
But now it is poor or “middle-class” whites who are being left for dead. They can’t get decent jobs. Their marriages are breaking up. Their children are raised by single parents (the rate is about the same for whites today as it was for blacks in the ’60s). They drink too much. They take drugs. They’ve given up looking for work. They kill themselves at a startling rate. Why? Noah Smith guesses:
The uneducated class became a floating low-skilled labor force, which decreased the marriageability of white working-class men. That impaired family formation. A couple of decades later, the lack of family support started to take a big bite out of the emotional health of working-class whites, causing them to turn to alcohol, drugs and suicide once they reached middle age.
We’ll take our own guess: As the “breadwinner” jobs disappeared, white men lost their sense of purpose and place. Women often find it easier to get work and often earn more. Men could no longer “bring home the bacon”; women had less use for them.
When women have no use for men, men soon get up to mischief.
Further Reading: As Bill mentioned, Porter Stansberry came up with a way to profit from the looming debt crisis in America. It’s called Stansberry Credit Opportunities, and it’s a totally different investment approach – one that can be vastly safer than buying stocks and can generate annual income of 12%-20%.
In his first-ever feature presentation, Porter examines the most dangerous problem facing you and your money right now. More importantly, he explains his solution – one he’s used to make tens of thousands of dollars OUTSIDE of the stock market. Watch it here now…
[Editor’s Note: Tech expert Jeff Brown is getting ready to launch a new investment advisory – Exponential Tech Investor – that’ll help you profit from game-changing innovations. Below, he identifies an exciting area of breakthrough technology.]
I use three “indicators” to identify the best investment opportunities: enabler, momentum, and disruption.
The enabler indicator pinpoints companies that use exponential technologies in their products and services. This is important because it means they are not shackled to the relatively slower growth of old technologies, business models, and processes.
Instead, they are well-positioned to benefit from the massive leaps forward that occur with new technologies.
Enabling technology has empowered companies like Airbnb, which is expected to become the largest hotelier in the world by the end of 2015 based on number of nights sold. Airbnb owns no physical assets yet has become an almost indispensable platform for travelers and has earned a $25 billion valuation all within the span of only six years.
Airbnb built a market-based platform that matches rooms for rent with customers on the back of the latest computing power, network infrastructure, and low-cost storage. And that’s just one example. Companies throughout the tech space will benefit from these advances.
In technology, there is something called Moore’s Law, which holds that computer processing power – measured by the number of microprocessor units (MPUs) on a transistor – doubles about every 18 months or so.
The current generation of MPUs have computing power roughly equivalent to that of the human brain. The companies investing the most in this technology are Intel (NASDAQ:INTC), Apple (NASDAQ:AAPL), IBM (NYSE:IBM), Qualcomm (NASDAQ:QCOM), Samsung, and NVIDIA (NASDAQ:NVDA).
In addition to the core computing power provided by MPUs, the backbone of the global Internet infrastructure has been built out with advanced fiber-optic cabling over the last 25 years. This has enabled the cloud-based economy to be established. Companies like Corning (NYSE:GLW) and Cisco (NASDAQ:CSCO) have benefited greatly from this advancement.
Not only will these trends of faster computer processing and faster networks continue in the future, they will accelerate. This will enable even more exciting innovation, development, and investment opportunities for exponential tech investors.
In fact, during the next 10 years, this is where the biggest fortunes will be made.
Tomorrow, we’ll talk about the momentum indicator.
P.S. If you want to be among the first to learn about my top picks for breakthrough tech stocks on the verge of exponential gains, follow this link.
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Republican presidential candidates Ted Cruz, Ben Carson, Rand Paul, and Mike Huckabee are all pro a return to some form of commodity-backed money. Some have accused them of “macroeconomic illiteracy”…
Bill certainly touched a nerve yesterday, with his comments about last Friday’s horrific terrorist attacks in Paris.
That is a very callous remark – “smallish.” It is very, very hurtful and causes shame on American identity… exactly the kind of thinking that distances Americans from rest of world and promotes contempt and labels of disgust and bitterness…
– Cheryl M.
Oh, please… Grouping Catholicism with the likes of the SS in an article concerning the massacre of this past weekend… as if my faith promotes evil like the fascists – Islamic or Nazi – do and did.
The sins of the members of my Church are the results of human weakness and vice, not due to the teaching of my Church. But to lump a “Catholic massacre” in the context of what just happened in Paris… How dare you.
The hubris. The sheer arrogance. As a Catholic, I forgive you. My faith demands no less. But as a man, I hold you in contempt. Your piece, so smug about the “smallish” affair in Paris this past weekend – how vile.
I wonder how “smallish” it is to those whose whole world has been destroyed, murdered this past weekend?
This piece makes me as ill as anything I have read in the last 20 years. Good luck with your “direction of editorial content.” The fish rots from the head….
– Chris L.
What a shallow dribble of words.
– Bruce K.
I hope Bill can clarify the point he was trying to make in today’s Diary about his thoughts concerning the massacre in Paris. I ask because it appears he may have imbibed one too many bottles of Cabernet Sauvignon prior to writing this piece.
Was Bill’s point: (1) That the Paris massacre was okay because the body count wasn’t that high when compared to other massacres? (2) That evil acts should never be confronted and remedied? (3) That, no matter what, war is never a good option when dealing with evil people, nations, acts?
I certainly understand that Bill can’t hit it out of the park every time he writes one of his pieces. Maybe he can clarify his point for us after he dries out.
– Matt C.
You are a fantastic writer. I wish I could agree with you all the time but I just can’t.
The Mai Ly Massacre happened because of bad leadership and green troops. I was in the Marines at the time, and we couldn’t believe what had happened. Our leaders would never have allowed it.
Furthermore, my generation were told to go where our country told us to and do what we were trained to do. We were just kids. I was 18 when I arrived in the war. I was surrounded by honorable boys doing their duty.
We didn’t have a political opinion.
And we didn’t have to worry about people thanking us for our service – nobody said that. Welcome home was said, but that was as good as it got. We didn’t mind, we didn’t serve for the thanks and adulation.
Now I can understand and appreciate people with your views, but at the time I would just smile and pop you in the nose. Now I listen. As the Bible says, “When I was a child I thought as a child but now, as an adult I see as one.” Not really a quote word for word, but the meaning is there.
Thanks for your opinions. We appreciate them.
– Gene D.
Want more Bill? To sign up for his monthly publication, The Bill Bonner Letter, follow this link.