The Truth Problem

Since Plato, Western thought and the theory of knowledge
have focused on the notions of True-False; as commendable
as it was, it is high time to shift the concern to
Robust-Fragile, and social epistemology
to the more serious  problem of Sucker-Nonsucker.

—NN Taleb

The Governor of Texas was bragging. No surprise, it being a native Texan’s propensity. “Forty-eight percent of all jobs created in America were created in Texas,” Said former Governor Rick Perry in 2009. So now it’s April 2015 and he’s no longer governor. Good thing, unless he wants to tell us layoffs are the Next Big Thing:

Texas layoffs

I don’t mean to be piling on here. Half my family lives in the Lone Star State. Politicians everywhere use any opportunity available to them to take credit for good economic data points, however ephemeral they may be. And, being an oil country dude, Perry was probably unduly optimistic about the staying power of a domestic industry that now requires extreme high prices to be viable.

The oil industry is in the toilet, but that’s not the only problem with employment. The employment report last week was dismal: 93 million employable people are out of the work force. The drop in the unemployment rate, regarded as something to celebrate in Washington, merely reflects a labor force participation rate that has declined to what it was back in 1977, when most households still had only one earner.

The entire nation is beset with a dearth of well paying jobs. Recent payroll jobs reports tell us that the complexion of the US labor force is that of a Third World country. Most of the jobs created these days are lowly paid domestic services.

The bubble in global debt continues unabated. Both lenders and borrowers learned nothing from the collapse in ’07-’08. Global debt is up 40% since 2007 to $199 trillion, and, as a percentage of GDP, it  averages globally 286% now vs. 269% in ’07. Lending standards have also plummeted.  In ’07, just before the crash, about 20% of corporate loans were “covenant lite,” meaning loans without adequate collateral. Today over 60% of lending is high risk.

Meanwhile, The stock market ran up big last week as the fast money crowd celebrated the reality that the Fed will not be raising rates in June. However, the game is getting harder to play. Since late January, the daily chart of the Dow Jones Industrial Average has been tracing out an exhaustion pattern. There may or may not be one more modest new high before the pattern ends and a sharp decline ensues. I don’t know whether this will be the start of a major decline, but it makes no sense here to tempt fate. The economic underpinnings are way too fragile.

At tops like this one, there are two types of participants:

Non-suckers: bankers, brokers, financial advisors and economists who advise their clients to be fully invested. For this they get handsome fees without having any skin in the game.

And,

Suckers: investors who, on their own or on the advice of the non-suckers cluelessly risk their futures in grossly overpriced investments.

The end game for the suckers is pretty awful. Non-suckers with no skin in the game will be fine. Well, they may be driving cabs or serving lattes at Starbucks while surviving in decidedly more modest circumstances after their clients are ruined. But they’ll be fine.

Cheers,

Rod

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