Technical analysts were taking note of record-high equity valuations back in May, 2013. There appears to be a new causal identity not related to earnings, which is, of course, incorrect.
Earnings for the median income have been declining precipitously since 2007. Since the value does not disappear, but is transferred, having been consolidated using risk-transfer vehicles (derivatives), the “disparity” is not disconnected. Earnings have been used to buy back corporate equity to support equity prices in the futures now.
Unemployment keeps falling, suggesting a recovery, but median income is declining. Like conservatives say, capital will be put to work (a distribution on the accumulation will naturally occur) if we simply work more for less. The thing is that the distribution, at lower-earnings levels, is actually a deflationary trend.
Doing the good (naturally derived in dark markets, falsely described as the invisible hand) is really a bad thing.
Since the median income is falling, the demand has to come from somewhere. Consumer debt rose $12.4 billion in June, for example, and because the capacity to pay it is actually declining, there is real concern about how affordable the debt needed to drive a recovery really is.
The Fed says a falling unemployment rate triggers a rising interest rate, making the debt less affordable. This, the Fed says, is the process of normalizing rates, and since it will occur at a rate that demands more and more debt, we should consider the actual deflationary trend in progress to be business as usual.
The predictable result, as usual, is a credit-default crisis, and because the financial system is TBTF, we will be paying big-bank executives big bonuses, bailing out banks managed by the best and the brightest, using best practices.
It’s all good (being better than all the alternatives, as capitalists say), isn’t it?