What has been will be again,
what has been done will be done again;
Ain’t nothing new, baby!
I’m taking Cindy’s mom back to Jacksonville and she asks me what I think will happen in the markets. I tell her. Now, she wants to know why I think it’s going down and what’s gonna make it do that.
Shirtsleeves to shirtsleeves in three generations is my reply.
It’s a natural occurrence. A hungry, driven entrepreneur claws his way out of poverty, starts an enterprise, sticks to it through the Ramen noodle days and, with grit and a little luck, turns it into a fine business.
When it’s time to hang it up, the entrepreneur passes a great company on to his kids, who have heretofore enjoyed the amazing life that the successful business builder proudly gave them. With far less drive, and dubious work ethics, the heirs keep the thing going, sort of, in between trips to their ski lodge or the pied a terre in Paris, until what is left of the company passes to the entrepreneur’s grandkids and finally falls apart, leaving the third generation destitute. It is not a mystery to anyone but the grandkids.
A similar tragedy will inevitably befall a nation dedicated to democracy and free enterprise because, where free will abides, human nature is immutable.
The children of the Great Depression had little to eat and nothing to wear. they walked out of destitute households and either rode the rails or scrambled to put together an economic life that made sense. Necessity molded their personalities.
They worked hard. My dad never asked for a job. “I said I want work,” he told me. He made it clear that it was not a job or a position he was requesting. It was work. And they gave him work. And he worked hard.
They were frugal. They had seen indebted parents devastated. They paid cash or saved until they could. My dad didn’t get a credit card until he was fifty, when the company issued him a Diner’s Club card to use for business entertainment.
The middle class in his generation accumulated great wealth, resulting in history’s largest ever transfer of inheritance assets to their kids, the Boomers. That transfer was the apotheosis of the cycle. Tom Brokaw named the generation that made the transfer The Greatest Generation. I see them as the luckiest generation. People are at their best when they have to struggle. It was just accident of birth that put them in the right era to act well.
The Boomers, jeez…what can be said, except that they have played the role that was assigned to them. They started with way more than their parents, and, instead of gratitude, their prevailing traits are narcissism, entitlement and dissatisfaction. And the traits continue, of course. The average middle class American has four credit cards, five times the mortgage their parents had, and not enough saved to retire in any kind of comfort. This is not an indictment of the children of the Greatest Generation. Human beings can’t stand success, and their misfortune was to have been born on third base. Not content, they try to steal home.
The result, inevitably, is bad behavior wherever an entitled, privileged class gains power. Government now serves plutocrats and screws the working class. In business, there is Corporatism, a relatively new word, which means drive the business for the exclusive wealth creation of the senior managers.
Ricky Gervais’ TV show, The Office, is where we learn about the culture of corporatism. Venkat Rao, analyzing the show, divides corporate employees in the show like this:
Losers are employees who see the hierarchy for what it is: a game where sociopathic managers and their sycophants maneuver themselves into power to exploit the remainder. Instead of buy-in, losers in this case opt for pay-for-minimum-time-in, and make a life for themselves away from work.
The clueless are serious workers who believe that loyalty, following the rules and hard work will result in fair recognition and compensation. They are the majority, which isn’t properly drawn in the picture. I was one of these, and there are millions of us in America who have been screwed by bosses. And by bought and paid for politicians.
Corruption in politics and business, always an issue, have grown exponentially this era. The result is extreme inequality in the distribution of wealth and income between the elites and their politicians (Washington, DC sports the richest per capita zip code in the nation), and the rest of us.
The ratio of CEO compensation to average worker was 20 to 1 in 1950. In 2016 it was up to 276 to 1.
Why? because they could get away with it while clueless workers plodded along without noticing what they were doing, and, only lately, are noticing that middle class income has been stagnant since 1973. Finally, millions are mad enough to revolt. The result is that Donald Trump, poster boy for the sociopath class, bamboozles people too pissed off to think straight into the preposterous notion that he can save them. Fat chance.
The other monster problem is debt. I’ve cited the statistics ad nauseam over the last few years. Suffice it to say, it is an epic bubble and no sector, government, corporate or private will escape the mother-of-all implosions when the next bust gets underway.
Best bet for when it happens: based on the Elliott Wave Chart of the Dow Jones Industrial Average, the market is close to the top of the next to last phase of advance. Next should be a drop to correct this rally, followed by the final move to a top sometime later in the year. Following that, I look for 10 or more difficult years to unwind the market, debt and inequality excesses. It will be the 1930s all over again, of that I have no doubt. Forewarned is better.
Love to my children and friends,