Financial Bubbles | - Part 3

Rising Inequality and Lost Decades

I don’t think this video is new (it was stumbled upon at this story at Vox about how bankers actually went to jail in Iceland after the financial crisis), but with the stock market rebounding sharply and set for new all-time highs, it’s worth another look.

Also see How Will the Economy’s “Lost Decade” Play Out in 2016? by John Cassidy at The New Yorker. It will surely be interesting to see how this all plays out between now and the election next November (I’m not hopeful, just curious).

China Stocks, Circling the Earth, etc.

The financial media is inventing new and interesting ways to talk about the China stock bubble that, almost unanimously, they think is going to get even bigger (perhaps much bigger) before it meets its pin. In this Bloomberg report, they equate the one-year rise in stock market “value” – $6.5 trillion dollars – to circling the earth 250 times with $100 bills.

It is clearly the newbie investors in China that are driving share prices higher (see this illuminating AP story for more evidence of that), but the financial media isn’t helping either. To wit, the Bloomberg story casually refers to the $6.5 trillion change as “value creation” (i.e., “The figure, $6.5 trillion, sums up the value created in just 12 months of trading on Chinese stock exchanges…”) and this serves to legitimize the gains.

Isn’t there a better phrase than “value creation” when referring to mature asset bubbles?

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Wage Growth Highest Since 2009

One of the many positive bits of data from Friday’s labor report was that average hourly earnings jumped 0.3 percent from April to May and are now 2.3 percent higher from a year ago, the biggest annual gain since 2009. In this item at the Atlanta Fed’s macroblog blog, they find an even more inspired upward trend when looking at the 3-month average.

Naturally, it will be important to see how this plays out over the summer since, in recent years, rising wages have been one of the key missing ingredients to a more robust (and much more interesting, inflation-wise) recovery.

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Gundlach: No Rate Hikes This Year

“Bond King” Jeffrey Gundlach explains why U.S. bond yields are rising sharply and then throws a little cold water on the idea that the Federal Reserve will be able to start normalizing interest rates later this year in this CNBC interview with Rick Santelli.

Also in the “no 2015 rate hike” camp is Chicago Fed President Charles Evans who, according to this item at the WSJ Real Time Economics blog, when it comes to inflation, wants to see the “whites of their eyes”.

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