The Disney character Uncle Scrooge McDuck must be happily swimming around in his money bin these days thanks to our economy in its record eighth year of expansion. While there is plenty to be anxious about today, most Americans can at least take some joy in the state of their financial affairs — a condition fundamentally attributable to we citizens having had the resources and leadership to preserve our financial system when it teetered on the brink back in ’08.
Our sense of smug satisfaction can start with the mountain of corporate cash now having reached an all-time record — a product, in turn, of historic corporate profits. Then, we witnessed the stock market reaching new highs day after day throughout the month of November.
Fueling much of this stock market news is a worldwide economy that has caught fire, as evidenced by the performance of foreign stocks and international funds. After five years of relatively flat performance, these funds have made gains of typically 30 percent in the past 12 months, which only brings their 10-year average annual return to about 2 percent — an indication of how lackluster the other nine years have been. But better late than never, if it means more robust overseas sales for us.
Meanwhile, that mountain of corporate cash has to be a contributing factor to our persistently low interest rates. Given so much supply, the demand for borrowing is not enough to prompt interest rates to rise. It’s hard to see how the Federal Reserve increasing interest rates will have much effect in this environment.
Every indication is that companies would rather salt profits away, rather than invest them in new products and new people — or use that cash to increase wages.
When a moderator at an event with Gary Cohn, director of the National Economic Council, recently asked a room packed with corporate executives if they would use their Tax Reform Act savings to raise capital investments, only a few hands went up. I wish he had asked if they would use the tax savings to raise their own wages. An honest answer would have generated a flurry of hands.
Meanwhile, at the local store of a major national retailer, a help-wanted sign in the package pick-up area offers a job for sales clerks starting at $10 per hour — with no benefits. As the nation’s health insurance promises to unravel for these employees, they go back to crowding into the emergency rooms where the rest of us wind up effectively paying for their care — or what little the overworked emergency personnel can spare. If we have health insurance now that covers pre-existing conditions, we should count our blessings — blessings as valuable as stock market gains or cheap interest rates.
Speaking of blessings, the prognosis is that the first half of 2018 will offer a continuation of this year’s good tidings. This is news from the Institute of Trend Research (ITR), which has a long history of being reasonably clairvoyant relative to its peers in the forecasting industry. The fact that corporate profits are continuing to rise supports the continuing rise in stock market values. By mid 2018, leading indicators suggest the beginning of a cooling off period, followed by a mild decline in 2019.
Setting aside these quantitative factors, however, there’s always the threat of so-called “event risk.” It doesn’t take much imagination to guess what possible events could cause a major economic train wreck.
But in the meantime, “Cheers.”
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