By Charles Biderman
For some, this economy is lots better.
We keep hearing that an economic recovery is underway. Yet for those who don’t have lots of money in the stock market, there’s been no economic recovery.
How many of you know that the market value of all U.S. listed stocks right now is $18.7 trillion. Not only is that almost a double from the March 2009 low, but the gain itself is just over $9 trillion. Let me repeat, the value of all US stocks is up by over $9 trillion in three years. Wow.
Obviously for such a huge gain the underlying US economy, particularly wages and salaries and employment must be doing so much better than it was back in early 2009. Right?
Early in 2009, after-tax take home pay for everyone who pays taxes was just about $5.9 trillion annualized. That was down from an all time peak of $7 trillion annualized at the beginning of 2008. The main reason after tax income was down so much was a plunge in capital gains – primarily from profits on home sales.
After three years of attempts at a recovery, take home pay is now around $6.3 trillion, up all of $400 billion annually since the early 2009 bottom, or 2% a year.
Wait a minute!
Incomes are up only 2% before inflation per year. How does that minimal increase in take home pay justify a $9 trillion increase in market value?
Occupy Wall Street complains that Wall Street is doing great and everyone else is not. I think they have a point.
Shareholder wealth has doubled up, $9 trillion to $18 trillion, and take home for everyone who pays taxes is up about 2% a year – which is not even keeping up with inflation. After inflation wage earners are losing ground while shareholders are buying Coach and Louis Vuitton stuff at Bloomies and Nordstroms.
So wait a second, how is the stock market up $9 trillion, while the rest of the economy is flat on its butt?
The simple answer is that shareholders owe it all to President Obama and Fed Chairman Bernanke. The US government has added about $5 trillion in debt over the past three years. Some of it ended up on the balance sheet of corporate America.
The record amount of cash on public company balance sheet currently earns nada, nothing in terms of interest income. Therefore, companies say to themselves, why not use this free cash to buy back shares? And so they do. And so stock prices have been going up.
However, new stock buybacks have begun to slowing dramatically and insider selling is spiking and insider buying is disappearing. Unless incomes start surging soon, stock prices eventually have to crash.
As I have said many times, there is no way income growth can surge anytime soon. Therefore, at some point in time, I expect a major stock market crash. The only question is when.
Charles Biderman President & CEO TrimTabs Investment Research Portfolio Manager TrimTabs Float Shrink ETF (TTFS). This story originally appears on his blog at http://trimtabs.com/blog/2012/02/09/bidermans-daily-edge-292012-making-the-case-for-occupy-wall-street/