Why the stock market’s good fortune may not be great for society – The Mercury News

In the back of every investor’s mind is the nagging thought that stock prices can’t keep rising forever. What seems too good to be true usually ends badly.

Not to worry. In January alone, the Dow Jones Industrial Average stock index crossed two milestones of 25,000 and 26,000, marking the 202nd time since the March 9, 2009 bottom that stocks had hit record highs. However, some unusual fundamentals are at work which buoy up prices beyond what we might expect based on historic price-earnings ratios and other forward indicators.

What is great for the market, however, may not be so wonderful for us as a society in the years and decades to come.

David Cay Johnston in his new book “It’s Even Worse Than You Think — What the Trump Administration is Doing to America” lays it all out in a work that rivals Thomas Paine’s “Common Sense,” written in 1775.

The Pulitzer prize-winning New York Times journalist has been a long-term thorn in the side of our current president for more than 25 years — basically just pointing out the obvious. However, this book describes the “termites” undermining much of what we take to be a given — like clean air and water, to take a simple example.

How this affects stock prices positively starts with the euphoria of many industries (and their stock analysts) — a euphoria reflecting what they see as the dismantling of government regulations, and the higher profit margins that will result.

Dean Baker, a liberal economist of note, points out that “facilitating the rip-off of consumers” makes businesses like banks or student loan processors more profitable and sets up a competitive condition that punishes honest institutions.

This free-market distortion was proven 25 years ago with the savings and loan collapse that sent more than 900 bankers to jail. William Black, the regulator who put those executives in jail, coined the term “control fraud,” which hurts shareholders, borrowers, employees and taxpayers.

The Consumer Financial Protection Bureau is now under siege even though an organization that has cost us about $4 billion so far has saved more than $12 billion for consumers. Without the bureau, they would still be waiting on hold, at best, or put out in the street by lenders who couldn’t prove that they actually owned the loans.

Worst yet have been student loan borrowers, and the parents and grandparents who co-signed, whose loans have been paid off but who are still receiving dunning notices. A deputy secretary of education has been recruited from the loan servicing companies he ran. Do we think that help might be on the way? Will the CFPB survive at all now that its new administrator considers it an abomination?

On the clean air front, the Environmental Protection Agency is abolishing the air pollution limits on dirty trucks. We all know what that air will look and smell like. But it’s an example of what is happening across the board in a desperate effort to prop up the fossil fuel industry. We can see how stocks in multiple industries will benefit from an EPA with its new antithetical priorities.

In the same vein, it’s hardly coincidental that the new tariff will apply to imported solar panels — whose installation industry is now one of the fastest-growing job markets.

The tax cut is a different story. About 43 percent of corporate savings is predicted to go to stock buybacks and dividends. Meanwhile, 19 percent will pay for mergers and acquisitions; 17 percent will go to capital investment; and 13 percent for bonuses and raises.

Top executives, paid largely with stock, will of course benefit most from the buybacks and mergers that raise stock prices. But that, of course, helps the rest of us as well who are saving for retirement.

As good as it may feel to have money piling up rapidly, even if only in modest amounts in our respective retirement accounts, is this the way we want to accomplish it?

On the whole, I’m always optimistic about the long-term viability of the market, and a large part of its recent ascent is owed to the growing strength of the world economy. But the influences mentioned above are not insignificant, and they are mentioned repeatedly by the president as the major reason for the market’s performance.

Still, what price do we put on quality of life? At what point is it worth more than money? While peering into an environmental abyss, we should ask if this reflects “Common Sense.”

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