The Two Americas

Welcome to This Week’s Leyendecker View

A lot of bull**** happens in our country. But a lot of great things happen, too.
– Kevin Durant, NBA player and member of US Olympic basketball team

THINKING OUT LOUD

The Two Americas

One America is feeling good. The other feels left behind and maybe even unwanted.

A 2023 Gallup poll found that 61% of Americans own stock in the stock market. That means about 40% of Americans do not.

The Federal Reserve tells us that 93% of the stock is held by the 10% of richest Americans. That means a good number of the 61% of Americans who own stock do not own much.

The Federal Reserve also tells us that about 66% of Americans “own” their own homes. About 40% of those homeowners own their home outright, meaning they have no mortgage. That means 60% of “homeowners” really own a mortgage.

At first glance, these numbers may not seem like much.  But if we dive a bit deeper, we can see why so many Americans don’t feel good about the economy.

Since 93% of stock ownership rests in the hands of the top 10%, and since around 40% of Americans don’t own a home, while many more “own” a mortgage, let’s make a very broad assumption that around 40% of Americans do not own stock or their own home. It’s not perfect math. In fact, it’s probably a low ball. But 40% feels like a good guesstimate for this analysis. 

From an April 2024 Forbes article:

“A 2023 survey conducted by Payroll.org highlighted that 78% of Americans live paycheck to paycheck, a 6% increase from the previous year. In other words, more than three-quarters of Americans struggle to save or invest after paying for their monthly expenses.

Similarly, a 2023 Forbes Advisor survey revealed that nearly 70% of respondents either identified as living paycheck to paycheck (40%) or—even more concerning—reported that their income doesn’t even cover their standard expenses (29%).”

Did I interpret that correctly? Almost 30% of Americans do not have income that covers their standard living expenses?

A couple lines later in the article reads:

“For example, nearly half (49%) of Baby Boomer respondents—who are nearing retirement or already retired—say they’re living paycheck to paycheck.”

WTF? Almost half of the Baby Boomers are living paycheck to paycheck?

On the one hand, you have the S&P stock market index up 345% over the last twenty years, and home values have risen almost 50% since 2020. All these financial asset owners are likely feeling pretty good about the economy. But those who don’t own financial assets are likely struggling to pay their bills.

What has caused this imbalance?

Government has.

It’s pretty simple.

Over the last 20 or more years, our economy has become ever more dependent on fiscal and monetary stimulus. You can see this in the enormous increase in our federal debt.

According to the St. Louis branch of the Federal Reserve, we had about $12 trillion in federal debt in 2014. Today, it stands at about $34 trillion. That’s an almost 3X increase in 20 years. Keep in mind that the $12 trillion in 2014 is what we accumulated since the country started borrowing money, many centuries ago. Then, in just 20 years, we about tripled it.

Furthermore, in the last 20 years the Federal Reserve’s balance sheet has gone up almost 10x. In 2004, the Fed’s balance sheet was about $780 billion. Today, it’s a bit north of $7 trillion dollars. That is $6+ trillion dollars the Fed has sorta, kinda injected into the economy. It’s Monopoly money, folks. The Fed has its own printing press.

As US debt and the Fed’s balance sheet ballooned, all that money had to find its way somewhere. One tangible result was an increase in the value of financial assets, like stocks and home values.

But ever more stimulus and ever more easy money also causes inflation. As famed economist Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon.” The more money you “add” to an economy, the more it will drive up prices.

Because of ever growing fiscal and monetary stimulus, financial asset owners have been in the right place at the right time, while non-financial asset owners have been in the wrong place at the wrong time. The former group can handle inflation because their net worth has been growing, while the latter group has no net-worth cushion.

Today we see ample evidence that 30%, maybe 40%, or maybe even 50% of American workers are struggling to keep up.

Recession risk rises when consumers turn cautious, says the NY Times. Pay raises are slowing down, says the WSJ. Childcare, rent, insurance and other costs people can’t avoid are crushing household budgets.

Workers who do not own financial assets are getting crushed. Workers who do own financial assets better pray their values don’t go down.

THE ECONOMIC VIEW

Inflation is cooling
While the savings rate keeps falling
Travel is slowing down
Is the US already in a recession?
Time for the Fed to cut rates.
But wait, retail sales blew past forecast
Walmart is still king of retail

OPEC cuts global oil demand outlook
EIA says the same
China’s market signals economic anemia
Could recession go global?

INFLATION, DEFLATION OR BOTH?

Electricity inflation may soon explode
AI, crypto and technology are energy hogs.

Inflation hurts most on essentials
Many of those prices don’t come down.

Hundreds of drugs are in short supply
This won’t make them cheaper.

THE LABOR VIEW

Big companies are cutting jobs
Soft landing or real recession coming?

A six-figure job
No degree required.

New Starbucks CEO gets to work remote
This gonna get people back to the office?

MEANWHILE IN EUROPE

German economic expectations nosedive
They need to pump up tourism

EU commissioner threatens Elon Musk
Letter declares: Post only what we approve, or else.
Was this the best clap back?
Brussels slapped down commissioner

Brussels abandons overfishing regs
What are its other priorities?

THE GLOBAL GAME

WHO declares Mpox global health emergency
It has spread from Africa to Sweden
What is Mpox, and how does it spread?

Emerging-market stock market leadership
Is transitioning from China to India

Few care about 150,000 killed
What? Where? In Sudan.

THE UKRAINE FIRE

Ukraine captures key Russian gas point
Ukraine pushes deeper into Russia
The US and EU give a thumbs up
Putin is furious!
Does Russia have enough soldiers?
Does Ukraine have enough troops?
Ukraine launches massive drone attack

More casualties in Russia and Ukraine
Are African recruits

THE GAZA FIRE

US approves Israel fighter jet sale
But jets won’t show up until 2029.

Biden team is anxious for a cease-fire
While Israel is close to defeating Hamas

US sends sub and carrier to Red Sea
A deterrent that postpones the inevitable?

THE SLIPPERY SLOPE

Iran keeps working on nuclear capability
Iran not interested in another nuclear deal
Will Israel make a preemptive strike?

Moscow and Tehran relations suffer
Each distracted by a different war.

If war with China comes
US tech bros are ready for it

FINANCE

Jamie Dimon supports “Buffett Rule”
Taxes should be raised on the rich.

Scotiabank buys interest in KeyCorp
Is this a sign of banking things to come?

Buffett exits big AI stake
The AI gold rush is about to bust.

BlackRock embraces “blended finance”
The new diversification trend.

REAL ESTATE

Nation’s largest 3D-printed neighborhood
Is almost finished in Texas

Housing affordability keeps declining
What happens if recession comes?
The $1MM starter home locales
Mortgage refinancing surges

When interest rates come down
Homes will still be unaffordable

INFO TECH

Is Google at risk of being broken up?
Big tech may get smaller soon.

DEF CON Franklin is a hacker project.
To protect US infrastructure

2.6B people don’t use the internet
Those lucky bastards!

OTHER TECH

An entirely new way to treat anxiety
A better option on the horizon?

New electronic bandages
Have decreased recovery times.

Future brain surgeries
Could be done with sound waves

THE CHAT ON AI

What are all the AI risks?
MIT created a website to track them.

Branding things AI-powered
Scares away consumers.

Here comes Her.
OpenAI releases a bot you can talk to
More people use AI for relationships
And to interact with deceased loved ones

OUR GOOD FRIEND, FAILURE

The internet is confusing us
How’s this going to work out?
Established power is growing its control

A teenage smartphone-free camping trip
Produced happier, smarter kids.

More schools are banning phones
It’s time to reduce distractions from learning.

THE NEXT NORMAL

Americans’ view of alcohol is shifting.
More see it as unhealthy, per Gallup
Daily cannabis use overtakes drinking

A FL private sector company
Is proving high speed rail is doable.
While CA bullet train drowns in red tape

Violent crime keeps dropping
The angst from Covid subsides.

THE WAR ON CARBON

Chevron has a new drilling technology
It could add billions of barrels to reserves.

Mexico does an about face on O&G.
New president wants private sector support

CA considers state take-over of refineries
Is California a dictatorship?

THE ENERGY TRANSITION

Global climate tech funding down 50%
Long on virtue, short on profits.

Nobody is buying green hydrogen
It’s too complicated to make commercially viable.

The secret, magical life of lithium
It’s truly a multipurpose mineral.

THE CHINA SYNDROME

China steel makers are in trouble.
Internal demand is collapsing

Multinationals sound China alarm
Their weak demand may signal global slowdown.
Foreign investors running for the exits

Huawei readies Nvidia-like chip
Sanctions are not holding it back.

THE WASHING-TONE

Biden’s IRA is not going smoothly.
Many delays in Building Back Better

US offers Maduro asylum
If he’ll step down from autocracy.

Number of border encounters under Biden
Holy moly!

THE ELECTION DISTRACTION

A deluge of misinformation
Is challenging elections.
So are foreign influencers

Trump pisses off the UAW
Who doesn’t he piss off?

Is it really all about Midwest voters?
How did it come to this?

MAKING A BETTER YOU

2 minutes a day
To better happiness

Mental health support programs
Could/should start in school

Is Ozempic a wonder drug?
It helps more than just weight loss.

HOW ABOUT A BREAK

6-ton Stonehenge center stone
Came from 435 miles away. OMG!

Farmers can be artists, ya know.
Check out these corn mazes

Sea lions map uncharted ocean
What kind of pay are they earning?

PLANNING VACATION?

The Lofoten Islands in Norway
Don’t tell anyone about them.

The best bourbon distilleries
Whiskey aficionados take notice.

Wandering West Texas
Maybe wait for cooler weather.

MUSIC BOX

Jeff Goldblum and Haley Reinhart
Cover Taylor Swift’s “Lover”

Milton Nascimento’s Tiny Desk Concert
Retired Brazilian legend gives us some soul.

The Queen of Pop turns 66 today.
How have she and “Like a Prayer” aged?

CASTING AROUND THE PODS

Scaling culture from start-up to IPO
Brain Halligan, co-founder of HubSpot, on The Knowledge Project.

VIDEOS OF THE WEEK

A luminous lady passes on
Gena Rowlands
My favorite film of hers, Tempest.

Saturday Night trailer.
When it all started.

World Dog Surfing Championship recap
Not the Olympics, but…

FROM THE HEADHUNTER’S KITCHEN

Some cool dinner recipes
For the dog days of summer.

And some groovy salad recipes
Miso salmon and rice

Me so happy!
Bake an easy French cake
To celebrate the Olympics

THE RANDOMS

“The world that exists today is the product of monopolistic conduct. That world is changing.” said the judge who recently ruled against Google.

NYC is complaining about the $10B it’s going to cost to deal with its 175,000 illegal migrants. So imagine how much it is costing the rest of the country to deal with the 7.2MM illegal aliens that have crossed our border during the Biden administration’s term.

After writing last week’s essay about the coming AI gold rush bust, I remembered a previous technology gold rush bust, Global Crossing. Global Crossing, a telecom company that provided computer networking services, laid thousands of miles of subsea cable to support and enhance global internet traffic. In 1999, Global Crossing had a valuation of $47B. The company laid infrastructure that far exceeded demand at the time. The company never had a profitable year and went bankrupt in 2002. Today, those subsea cables are integral to the global communications systems.

Odds seem high that even though AI’s current investment frenzy might be headed for a bust, there will likely be some longer-term positive implications from the gold rush. Just as was the case with Global Crossing.

Did all the free Covid money create a consumption boom that created a consumption addiction? The drop in the personal savings rate suggests people are still consuming rather than saving.

What if climate change hysteria is just a bigger Y2K? The media, big tech and government all convinced us Y2K required us to upgrade computer hardware and software in order to avoid a cataclysmic event. But then it turned out to be a big nothing. What’s the old saying…

Fool me once, shame on thee. Fool me twice, shame on me.

Around New Year’s, lots of people think about their next year and their aspirations for it. For many, these aspirations become New Year’s resolutions. That’s great, but we don’t have to wait for New Year’s to think about new aspirations. We can do so today, this very minute. Think about what you want. But maybe also consider an aspiration that we all would benefit from—to laugh more. Find more reasons to laugh.

Look for joy every day. Joy is out there in many different places and in many different forms. Joy is your good friend. Abandon it at your own peril.

IN CASE YOU MISSED IT

The Next Gold Rush Bust
August 9, 2024

Fixing the Debt
August 2, 2024