Wednesday, September 30, 2015

"I think earnings are misstated and sort of a complete mirage."

September 30, 2015
Carl Icahn: I think markets are overpriced, earnings are misstated

"I think earnings are misstated and sort of a complete mirage," he said Wednesday.

On the Illusion of Prosperity blog, we are not believers in mirage theories!

Oops. I just got a text from my lawyer. He warns me not to use "we" when there is only one of me. He also states that I should not swear to disbelief in mirage theories under oath. He's concerned that illusions and mirages might be similar in the eyes of the law. Imaginary lawyers. Whatcha gonna do?


Troy said...

that's a pretty big misstatement!

I think the alternative is the economy is firing on all cylinders more or less now.

The 2002-2006 economy was driven by $1T/yr fraud in residential real estate, I just think now we have an economy that is mostly working, creating wealth and distributing it.

Everybody expects a recession to come, but I don't see the causation, other than people expecting a recession to come. shows how Uncle Sugar is a much bigger agent in the economy than it was in mid 20th century.

DC and state spending is a $6T money hose redistributing wealth all over the place, and it's only going to get bigger as the baby boomers start spending their SSA checks.

This ain't the old regime.

Stagflationary Mark said...

It actually is a pretty big misstatement, once adjusted.

We go round and round on this. I do not believe that the business cycle is dead. I do not believe that Social Security recipients spending money on basic necessities will be a huge driver of future growth.

So I guess we'll just continue to agree to disagree.

Troy said...

The baby boomers are going to fade as demand-drivers to some extent, but they do have trillions to spend in retirement.

And Gen Y Is bigger and waiting to step into their shoes.

Boomers, age 51-69 -- median boomer is 60

Gen Y, age 14-32 -- median millennial is 23

I see the flows, I do not see where they reverse.

real per-capita consumer debt take-on

there's no issues with government borrowing, even tho debt to GDP is 100% now (the deficit is approaching just 2% of GDP)

The Fed dropped made three money drop passes on the economy 2010-2014, and they'll do it again if they need to.

I don't see the economy as particularly well balanced, in that the trade deficit is immense, as are the asymmetric flows away from wage earners, but it's doing well enough that most people are doing OK again and not so well that employers have a hard time filling positions.

People talking about the Goldilocks economy 10 years ago made me want to put my first through the LCD, but now I just don't see the failure mode, and I *do* see some great tailwinds, like the Gen Y demographics pushing the boomers into their well-deserved retirement.

Health care alone is going to be an immense growth sector.

shows health has doubled since 1990

The job rotation in education is going to be immense as boomers take their juicy state pensions and their positions are taken by eager millennials or tired and bitter Gen Xers.

Troy said...

reading BusinessWeek this AM I saw that, now that's very bubbly, funding via $500,000 each from 300 Chinese nationals . . .

Cycles have drivers, and I think what drove the 19th century didn't drive the 20th, and what drove the 20th may not be operating now.

real per-capita GDP growth YOY %

With less growth comes more stability?

Stagflationary Mark said...


Unemployment Rate

That is not even remotely stable. I would agree with you and be much more optimistic if it was a flat horizontal line. It's not though. Not even close.

The business cycle is alive and well. Employers are already having problems finding the right qualified workers. Not every unemployed can do every job.

Putting the unemployed back to work and ZIRP are two huge tailwinds and at least one (probably only one) is about to end.

Further, saying that a slowing economy adds stability is a bit like saying that a stalling airplane adds stability. Zero growth is where recessions happen. The closer we are to zero the more dangerous it is.

As always, just opinions.

Troy said...

They dilute UNRATE by excluding 'discouraged workers'.

shows we're still ~9M jobs short the 1999 'full employment'.

saying that a slowing economy adds stability

not a slowing in the short-term sense, but slowly growing in that 2% is the new norm, not 5-10% of the 50s and 60s.

The economy used to be a *lot* more volatile than it is now. One big difference between now and the postwar regime is electronic payments are really lubricating commerce.

That and having millions of Chinese to make all our *bleep*. and the containerized shipping to get it here economically.

Hell, iPhones are so small Apple just ships 'em over by the planeload.

Troy said...

The 80s were a good run.

The 90s were a good run.

I think this decade will be a good run.

And furthermore, I don't see where the wall is in 2020.

2020 the baby boom will be aged 56 to 74, median boomer being 65 (!)

There were 4M people born each year during the 50s boom years, there's going to be ~ 4 million people leaving the workforce each year 65 years later. This is really a new regime.

Gen Y is not only going to get hired via economic growth, but via the exit of the boomers, with Gen X filtering up to take the boomer jobs directly, and Gen Y taking the Gen X jobs.

The 19th century was hampered by the fixation of money as hard currency.

The 20th century was hampered by the fixation on credit as a punchbowl to be taken away.

The 21st century is not going to operate like this.

Stagflationary Mark said...

Unemployment Rate with Discouraged Workers

Heading to ground. Full throttle. No flaps. Soft landing very unlikely.

The "wall" is the landing. We've squeezed a decade's worth of falling unemployment rate tailwinds into half a decade. I don't see any way this falling trend can continue until 2020.

The business cycle is not dead.

Troy said...

I don't think full employment killed the economy in 2000.

And they can get another 20% workforce expansion by raising weekly hours to 40:

A little wage inflation would do some good, actually. More the merrier!

Stagflationary Mark said...


I would not claim that full employment killed the economy. However, the inability to grow it past full was definitely a drag.

We get a lot of growth during expansions by moving employment back to full. Too bad we can't seem to *ever* stay there for long. Sigh.

As for wage inflation, I agree that would solve a lot of problems. On the other hand wage inflation will lead to even more automation. Robots don't demand higher wages.

We're not adequately prepared for the George Jetson economy where people work just a few hours a week and let the robots do the work. Just another opinion of course.