Is the Profit Bubble and the alleged "Trump Boom" bursting?

An article this week from Yahoo! Finance asked a question I've wondered as well. Is the US seeing the bursting of the Profit/Earnings Bubble?

With profit growth poised to slow sharply in 2019 for a number of reasons – chief among them less of a jolt from the Trump tax cuts – the market swoon happening today likely reflects the bottom line reality ahead.

“The market is pricing in the [earnings growth] slowdown now,” Blackstone vice chairman Byron Wien tells Yahoo Finance.

You mean an artificially-inflated Bubble caused by a Tax Scam and record stock buybacks is popping, now that there’s no wage growth underneath it to sustain the real economy? You don’t say!

Sure enough, Caterpillar announced its earnings this morning, and there was a notable selloff for the company immediately thereafter.

Global construction equipment giant Caterpillar (CAT) announced quarterly results that were a bit better than expected. However, management kept its full-year earnings guidance unchanged. Shares sold off following all the news.

Q3 revenue climbed 18% to $13.5 billion, which was slightly better than the $13.3 billion expected by analysts. Earnings came in at $2.86 per share, up from $1.95 a year ago and a penny better than expected.

Shares were down 6% following the announcement.

Also interesting is that Caterpillar said that it was starting to deal with higher material costs due to Trump’s tariffs, and they way they plan to deal with those changes seem ominous.

“Order rates and backlog remain healthy,” management said. “In the fourth quarter, price realization, operational excellence and cost discipline are expected to more than offset higher material and freight costs, including tariffs.”

“Cost discipline”? That sure sounds like layoffs and other cuts to me. But if they have order backlogs, Caterpillar is going to have to find a way to hire people to get those items cranked out. Something doesn’t add up there, and it feels like either higher inflation or reduced output is on the way.

Those results and comments from Caterpillar and other corporations tanked the market as much as 500 points today, before recovering to only close down 126. But it's continuing a trend of declines for October, and if we go back to that Yahoo story on US profits, we find much of the “gasoline” that fired up the economy and earnings earlier in 2018 is what’s going to make this Profit/Earnings Bubble pop.

Interest rates have bee rising largely due to the massive amount of debt that had to be issued to pay for the GOP’s Tax Scam (today was an exception, as people bought bonds because stocks were going down the tubes). And the “steady jobs market recovery” is actually the result of an unnatural stimulus in a time when unemployment was already below 5% when the Tax Scam came into place. We should have expected slower job growth in 2017 and 2018 due to the low unemployment rate and the country’s aging demographics, and that was happening before the Tax Scam was passed in December 2017.

12-month job growth, US
Sept 2016 2.70 milllion
Sept 2017 2.01 million
Dec 2017 2.19 million
Sept 2018 2.54 million

That pace of 200,000 jobs a month doesn’t seem likely to last in a time of 3.7% unemployment. So now what we need is accelerated wage growth for the 99%ers and increased investments and resources to improve quality of life. But we are seeing very little of either in this country right now, just more greed and widening inequality.

And regular economic growth also seems to be running out of steam. 3rd Quarter GDP is projected to be near 4%, but the Atlanta Fed’s projection indicates that 60% of that growth is going to be due to inventories that stack up on the shelves. The Atlanta Fed projects actual sales to only grow by 1.6% for the 3rd quarter, and private sector growth only growing atg 1.4%. If that underlying sales number doesn’t improve, hundreds of millions of dollars in election spending goes away, and then Trump and/or Congress decides to cut the country’s exploding deficit by reducing government spending, it’s pretty easy to see where GDP growth goes down the tubes and/or declines within a few months.

I admit, I’ve been wrong on this before, and there has been a short-term pickup in economic activity in 2018, even if it’s in a temporary, unhealthy way. But the economic reckoning feels like it’s coming sooner than later, and it probably needs to, because the more the profit and employment Bubbles blow, the worse the recession will be. And that, along with the likelihood of Dem wins against an unpopular GOP Congress and President, is why it feels like 2006 in more ways than one these days.