Juggling Dynamite

GMO’s 4th quarter letter is now available here on line, and should be read.

Both essays are worthwhile, but Jeremy Grantham’s contribution, The Road to Trumpsville:  The long, long mistreatment of the American working class is extremely relevant and insightful on the trends and abuses that have driven America (and much of the developed world) to a necessary breaking point today.  Some excellent charts too.

The one below showing corporate profits relative to employee compensation since 1947 is a secular glimpse that I have always found useful.  The mean reversion of profits (in blue) lower, and wages (in red) higher, has been underway since 2013, but has much further to run–bad news for those buying and holding stocks at crazy rich multiples of profits today.

Yes, higher wages and pension contributions, like adherence to stringent environmental and legal protections, generally reduce corporate profits. That is the price of a sustainable system, rather than one that blows up in chaos and carnage.  It seems we will have to learn this time-worn lesson the hard way once again.

A detailed review of some Pence history here:  The radical crusade of Mike Pence.

During the campaign, Pence said he and Trump were actually very much alike: They both liked to pray, and Trump claimed to be a good Christian. His old colleagues in Indiana shook their heads and wondered if he had sold his soul.

Just came upon this discussion and thought it worthwhile, especially the comments about pension targets, investment returns and political fall out.

Underfunded government pensions to the tune of $1.3 trillion, with a gap that just can’t be filled, is the ticking time bomb facing the US economy, which faces dramatic cuts in public services and potentially riots reminiscent of Athens six years ago.

Danielle DiMartino Booth is the tough talking former Federal Reserve advisor and President of Money Strong, with an insider’s perspective on finance. As she picks apart the danger signs with the US on the precipice of recession, it’s the impending pensions crisis that’s really keeping her awake at night.  Here is a direct video link.

Also see her recent article Blinding flash of the obvious, where she offers a reality check to those expecting economic miracles from the new US leadership, “Dear President Trump.. here are the obvious issues”:

1. The biggest challenge is what got you elected, that is the sense among millions of Americans that they’ve been on the outside looking in on the so-called economic recovery which technically started in 2009.

2. Time is the second obvious element that is not on your side. Next Thursday marks the beginning of the third longest expansion in the post-World War II era. Recession will be a reality on your watch, and perhaps sooner than later.

3. As you’ve recognized yourself, the financial markets are wrapped in bubble. You name it, they’re overvalued, some more than others.

4. And finally, your central bank is, as my former boss Richard Fisher said, “a giant weapon that has no ammunition left.”