A political tsunami is most likely when Wall Street gets out of step with the economy.
While it’s not yet showing up in the statistics, the U.S. economy is already in recession.
If you import or export, your business is down. If you’re a retailer, your business may be gone. If you’re a farmer, only the government is holding you up. If you’re a manufacturer and you’re not named Boeing, you’re struggling. If you’re in transportation you’re hurting. If you’re in the oilpatch, you’re dying.
The reason this isn’t apparent can be seen in the latest headlines from Maersk, the Danish shipping company. Their sales are down, but so are their costs, so their profits are up, and so is their stock.
How can profits be rising, and thus stock values, if we’re in a recession?
Thank the Cloud Czars. The deflationary impact of technology continues to grow. Moore’s Law grinds on. Each time an application goes into the cloud, the costs of running it go down and its impact on the market rises. The Gold Rush continues.
But if the “Cloud Kings” are in trouble, as Jim Cramer insists they are, the market’s view may finally be catching up with economic reality.
You first need to distinguish Cramer’s Cloud Kings from my Cloud Czars. He’s talking about software companies such as Adobe, Workday, and Salesforce.com, companies whose database-based cloud applications are transforming how business gets done.
But the Czars, Microsoft, Apple, Google, Amazon and Facebook, the companies that own the clouds, haven’t been doing great either. Amazon is still more than 10% from its high. Google has yet to break through its high, either. The action is in Apple, which is a device company, on Microsoft, whose cloud continues to gain share, and on Facebook, now that people have realized only 5% of its business is in the U.S.
It’s these companies, and the whole Cloud Ecosystem, that has been holding up the stock market. Portfolio managers have been adjusting to a reality I pointed out at the start of the decade, that technology is the only thing working.
Meanwhile, on Main Street, the real economy is being hammered. Home prices are stable or going down in many places, despite cheap money and tight supply. The “foodie” movement seems to have died with Tony Bourdain, and the “restaurants” gaining share are all selling fast-food garbage – McDonald’s, Yum Brands, Restaurant Brands. At the same time the suppliers to the fast food stocks are also being hammered – companies like Kellogg’s, Kraft Heinz, and Campbell’s Soup.
It was a disconnect between what was happening in tech and what was happening on Main Street that was blamed for the rise of Donald Trump. It’s this disconnect that will be responsible for his fall.
Let’s back up a moment to talk about politics.
The Trump coalition in 2016 consisted of Militarists, Mullahs and Moolah.
The militarists are backing away because of Syria.
The Mullahs, evangelical Christians little different from Iran’s Ayatollah’s or Israel’s ultra-Orthodox, are sticking by him. Religion fuels the racism, misogyny, and anti-gay sentiment that you see at his rallies. Those people all claim to go to church, even if church is just their idiot box.
Then there’s the Moolahs. That’s Wall Street. I’ve watched with dismay as Cramer has gone full-on Trumpist or has seemed to. He’ll deny that to the sky, but the people he trusts to tell him the direction of the economy are all on Wall Street. Wall Street is all-in on Trump.
Since Trump’s inauguration the Dow Jones average, which is what Wall Street sells as the market, is up by 33%. The S&P 500, which represents the real market, is up nearly as much, 31%. The NASDAQ, which mostly represents tech, is up 44%. But the Gross Domestic Product, the economy’s actual output, is up just 11%. Leon Cooperman, a Trump loyalist and hedge fund manager, claims the market will fall 25% if Elizabeth Warren is elected. He’s right, but that’s only because the market is inflated.
All of which means that if you’re not writing software, like my wife, or you’re not invested heavily in software, like me, life sucks. An entire generation is approaching middle age unable to start a family and attain a middle-class life. If you have grandchildren, chances are they’re sponging off you. You may be paying the grandkids’ bills, or you may be helping pay off your kids’ loans. Life is harder for this generation than it was for mine, unless you’re directly involved in technology or you’re an heir. Then, life is great. Average salaries at big tech companies are over $200,000. Estate taxes are gone, and so are most taxes on money. Tech is competing fiercely for what human capital exists, they’re scouring the world for it, but it’s still in short supply. Only those in the “talented tenth” are making it. The rest are pissed and have a right to be.
The anger can be misdirected. Tech’s as hated today as oil was in 1979, even though that’s what is driving the economy. Tech’s being blamed for troubles it has no control over. It’s blamed for the disconnect between the human capital we’re supplying and what it needs. Tech’s support of “charter schools” means only 1 in 10 kids are getting a quality education. Unless you’ve got the money for private school, the odds are against you.
Aligning the real needs of technology, a blossoming of human talent and potential, with the policies of government, is going to take a decade. This was true in the case of oil, which needed the protection of the military-industrial complex to maximize oil’s power on the economy. This change is going to happen slowly, and tech is going to come to Washington on little cat feet, as it must.
What’s going to get it closer is the Recession of 2019, which has disconnected the Moolah Administration from the real economy.
