The present speculative bubble, like all others before it, is destined to burst. The financial oligarchs have already prepared their exit plans and golden parachutes as they have done in the past. The working class, however, has no escape. The collapse will bring an even greater economic disaster on top of what has already taken place.
Dow Falls 474 Points as Inflation Worries Rise
Investors recoiled from stocks on Tuesday, selling off energy and consumer finance shares and taking technology equities for a wild ride.
The Dow Jones Industrial Average fell nearly 474 points, a 1.36 percent decline. The S&P 500 fell by nearly nine-tenths of a percentage point. The Nasdaq Composite fell began the day with a lurch downward by almost 2 percent only to reverse and end the day nearly flat.
Ten of the 11 sectors of the S&P fell. The energy sector, down by 2.56 percent, was the worst-performing sector. The financial fell 1.67 percent, with consumer finance stocks—such as credit card companies—falling 2.42 percent.
The biggest decliners on the Dow were Home Depot, Travellers, American Express, Chevron, and Goldman Sachs. The only gainers were Honeywell, Salesforce, and Nike.
Any significant acceleration of inflation would be a drag on the overall market and could crimp the broader economic recovery if it forced the Fed to raise rates or convinced Congress to tighten fiscal policy.
Commodity prices have risen, particularly for industrial metals such as copper and platinum, as well as for energy commodities like gasoline and crude oil. Tech stocks, which get most of their valuation from the future profits those companies are expected to earn, become less valuable if inflation decreases the value of those earnings. Shares of Microsoft and Apple fell but shares of Amazon, Twitter, Facebook, and Netflix were up.
Inflation has been a concern for investors since bond yields spiked earlier this year, though yields have mostly stabilized since then. The yield on the 10-year Treasury was steady at 1.62 percent. Despite reassurances from the Federal Reserve and a much weaker-than-expected U.S. jobs reading last week, investors have refocused on the potential for surging prices to pressure central banks into tapering off on their massive stimulus and ultra-low interest rates, analysts said.
The market is going through a period of “digestion” as the economy recovers and is due for some consolidation following a strong run, said Sunitha Thomas, national portfolio advisor at Northern Trust Wealth Management. Rising inflation isn’t unusual given the strong economic recovery along with a surge in company earnings, she said.
Rising inflation in commodities has begun to push prices for some consumer products higher. Still, analysts expect increases to be mild and tied to the growing economy, even as the jobs market lags behind. Consumer confidence and retail sales are regaining ground as people get vaccinated and businesses reopen.
Signals of inflation have popped up in other markets. China reported its strongest increase in producer prices since October 2017 last month, as supply constraints cascaded into manufacturing.
Meanwhile, the most recent round of corporate earnings reports showed a broad recovery touching many different sectors and industries during the the first three months of the year. Much of that was anticipated ahead of the reports and investors are now far off from the next big round of results.
Rampant Wall Street speculation: The fever chart of a terminally diseased system
Over the past year, the global financial system, above all Wall Street, has been in the grip of a speculative mania, the like of which has never been seen before in economic history. Two questions therefore immediately arise: how has this situation come about and what are its implications?
In March 2020, as the COVID-19 pandemic began to make its effects felt and workers undertook wildcat strikes and walkouts to demand health measures to protect their lives and those of their families, the financial markets plunged.
Wall Street was concerned that any effective health measures to contain the spread of the pandemic would result in a collapse in the bloated price of financial assets, above all stocks, that had been boosted by the trillions of dollars poured into the financial system by the US Federal Reserve and other central banks following the crash of 2008.
The US government and the Fed rode once again to the rescue of Wall Street. The Trump administration organised a multi-billion-dollar bailout of the corporations under the CARES Act while the Fed stepped in to provide trillions of dollars of support for all areas of the financial system, including for the first time the purchase of stocks.
Since then, on the back of this $4 trillion intervention and rising, as the Fed continues to purchase financial assets at the rate of more than $1.4 trillion a year, the world has seen an unprecedented orgy of financial speculation.
Wall Street’s main stock index, the S&P 500, has risen by some 88 percent since its March 2020 lows, reaching record highs on multiple occasions throughout the past year. Margin debt, used to finance the speculation in shares, has reached record levels, and the yield on the lowest-rated corporate junk bonds—barely one step away from default—has fallen to historic lows.
But the most egregious expression of the speculation has been the rise of the cryptocurrency market. Over the past year the most prominent cryptocurrency, Bitcoin, has risen by 600 percent, rising from about $7,000 per bitcoin to $54,000, reaching a high of $65,000 in the middle of last month.
Last month Coinbase, a trading exchange for cryptocurrencies, launched itself on Wall Street with a floatation that put its market value at $85 billion, compared to its valuation of $8 billion in 2018, exceeding that of some of the world’s major banks and the valuation of the NASDAQ exchange on which it was launched.
However, in recent days, even the level of bitcoin speculation has been put in the shade by another cryptocurrency, Dogecoin.
It was created in 2013 as a joke. Whereas the promoters of Bitcoin insist that it has some intrinsic value because it may be used to organise financial transactions without the intervention of a bank or some other third party via a blockchain ledger system, no such claims are made for Dogecoin.
Despite being worthless, Dogecoin has risen in price 11,000 percent this year alone. This week its market value reached $87 billion compared to $315 million a year ago. And as one cryptocurrency enjoys a rapid rise, speculators start a search for the next “big thing.”
The Dogecoin phenomenon is not an isolated event. It seems to be an expression of what could be described as a new operating principle in the world of speculation—the more worthless the so-called asset, the higher its price.
A little sandwich shop in Paulsboro, New Jersey, with sales of just $13,976, has made financial news after it was revealed that its parent company, Hometown International, achieved a market valuation of $100 million last month. Two of its biggest shareholders are Duke and Vanderbilt universities.
The rise of Dogecoin also reveals the high-level intervention of hedge funds and other financial institutions seeking to take advantage of its price momentum.
Then there is the case of non-fungible tokens (NFTs). These are images of pieces of art, a sports photo, or even a tweet—the first ever tweet issued by Twitter founder Jack Dorsey was sold as an NFT for $2.9 million—that are stored on a blockchain ledger. They are like a collector’s item but are not stored physically but digitally.
The class dynamics of this speculative orgy, fuelled by the endless supply of virtually free money by the Fed, are revealed in the escalation of the wealth of the world’s billionaires.
In the last year, as COVID-19 brought untold pain, suffering and economic distress for billions of the world’s people, the combined wealth of the global billionaires rose by 60 percent, from $8 trillion to $13.1 trillion. The number of billionaires rose by 660 to 2,775—the highest rate of increase and the largest number ever.
In the US, Amazon CEO Jeff Bezos and Tesla CEO Elon Musk have wealth of $177 billion and $151 billion respectively.
The speculative frenzy has extended into the broader economy. The prices of major industrial commodities, such as steel, lumber, copper, and soybeans, which feed into inflation for workers and consumers, are rapidly rising.
But the financial authorities, having created this frenzy by the endless outflow of cheap money since the crash of 2008 and the near collapse of March 2020, are caught in a trap of their own making. They fear that any move to try to bring it under control, with even a slight tightening of the financial spigots, will set off a financial crisis.
The extreme nervousness over such an outcome was revealed earlier this week when US Treasury Secretary Janet Yellen, a former Fed chief, raised the prospect that the central bank may have to tighten interest rates at some point. Almost immediately, fearing market reaction, she walked back the comment saying she was neither advocating nor predicting a rise in rates.
The incident has cast a revealing light on one of the most significant developments in the US—the open advocacy of unionisation of the workforce by the Biden administration.
Last month in an executive order, Biden created a “White House Task Force on Worker Organizing and Empowerment” which includes as members Yellen, Defense Secretary Lloyd Austin and Homeland Security Secretary Alejandro Mayorkas. The “empowerment” of government-sponsored unions takes place under the direction of cabinet officials responsible for military operations, economic policy and domestic repression.
The administration is fearful that the pent-up anger in the working class over the pandemic and the enrichment of the financial oligarchy at the expense of hundreds of thousands of lives, will be further fuelled by the escalation of inflation, leading to an uncontrolled eruption of the class struggle that will come into headlong conflict with the institutions of the capitalist state.
In times past, the Fed would have moved to contain such an upsurge by lifting interest rates and inducing a recession. But that road is now fraught with danger because even a relatively small increase threatens to bring down the speculative financial house of cards.
Hence the Biden administration has moved to set up a state-sponsored industrial police force, based on the trade unions, to carry out an organised suppression of the working class in the interests of finance capital.
The rampant speculation of the past year and the accelerated siphoning of wealth to the upper levels of society amid death and economic devastation must be the occasion for the drawing up by the working class of a balance sheet of the experiences through which it has passed.
There is no prospect for reform of the present capitalist socio-economic order towards meeting social need—the illusion peddled by the Democrats and their ardent supporters in the pseudo-left organisations. The past year has demonstrated that everything in society—including the very right to life itself—is subordinated to the insatiable demands of finance capital.
The present speculative bubble, like all others before it, is destined to burst. The financial oligarchs have already prepared their exit plans and golden parachutes as they have done in the past. The working class, however, has no escape. The collapse will bring an even greater economic disaster on top of what has already taken place.
The only viable, realistic solution to the terminal disease that has gripped the capitalist socio-economic order is the fight for a socialist program to wrest the commanding heights of the economy and its financial system out of the hands of the present-day ruling class and begin the economic reconstruction of society to meet social needs.
China Concern-Trolls Biden on ‘Alarming’ and ‘Disappointing’ Jobs Report
China’s state-run Global Times on Monday taunted the White House over the “alarming” and “disappointing” jobs report from April, suggesting the unexpectedly weak 266,000 jobs created “cast doubt over the recovery path of the world’s biggest economy.”
The Global Times was not far from the general response to the April report from U.S. analysts but spared only a few lines to discuss what the report actually said. Instead, it focused on dire predictions of what the future might hold if America’s recovery from the Wuhan coronavirus pandemic is “bumpier than many expected.”
The Global Times predicted the economy will “pose the greatest test for U.S. President Joe Biden that will likely consume much of his presidency, even though he has vowed to restore U.S. leadership on the global stage and step up ‘competition’ with China.”
“So far, the Biden administration does not appear to have a solution for the more fundamental problems other than calling for more stimulus measures to prop up growth,” the editorial trolled.
The Chinese paper found it laughable that Biden could talk about competing with China when his administration is spending vast sums of money on paying Americans not to work:
Nevertheless, judging from the latest data, economic relief measures may have just failed its purpose of reviving the jobs market. According to U.S. media analysis, a combination of Covid-19 fear and the unemployment benefits has caused many U.S. workers hesitant about taking jobs. As some U.S. media outlets noted, the U.S. government has basically paid workers to stay at home because unemployment checks are bigger than wages in many cases. Meanwhile, some U.S. businesses are reportedly having a hard time finding workers.
While observers generally predict that the labor force will eventually return with the vaccination campaign progressing and the society returning to normalcy, the disappointing jobs report may actually point to the growing economic inequality, a more acute problem that is exacerbating the division in the American society.
The most affluent group has benefited most from the overall economic recovery, stock market rally and even government stimulus, while millions of low-income people saw their incomes shrink and relied on government funds to make ends meet. What’s more worrisome is that a raft of services and other low-paying jobs may have vanished forever due to the pandemic. Such inequality of social resources is being reflected in the jobs market, which will overshadow the recovery progress and long-term growth of the U.S. economy.
The boilerplate about “income inequality” reads like a deliberate effort to goad Biden and his Democrat Party into slamming the American economy with even higher taxes and throwing even more money into wealth redistribution programs, a strategy that would indeed leave Beijing with very little to fear from the U.S. in terms of industrial competition for years to come.
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