EC Higher Wages: Good For You, Not Good For Stocks

The documentation of the endless march of asset markets higher has become passé; the illustration of the markets’ overvaluation redundant and tiresome. After years in which these same arguments have been made, without any discernable correction, the sober voices of warning have been discredited and discounted. The defenders of higher valuations have grown more numerous, more vocal, and more bulletproof.

I recently commented in a forum on cryptocurrencies…something to the effect that while I see blockchain as being a useful technology – although one which, like all technologies, will be superseded someday – I don’t expect that cryptocurrency in any of its current forms will survive because they don’t offer anything particularly useful compared to traditional money, and moreover have a considerable trust hurdle to overcome due to the numerous errors, scandals, and betrayals that have plagued the industry periodically since MtGox. Whatever you say about ‘traditional’ money, no one worries that it will vanish from your bank account tomorrow due to some accident. I don’t see anything particularly controversial about that statement, although reasonable people can disagree with my conclusion that cryptocurrency will never gain widespread acceptance. However, the reaction was aggressive and unabashed bashing of my right to have an opinion. I hadn’t even uttered an opinion about whether the valuation of bitcoin is a bubble (it obviously is – certainly there’s no sign of the stability you’d want in a currency!), and yet I almost felt the need to run for my life. The bitcoin folks make the gold nuts look like Caine in the TV show “Kung Fu”: the epitome of calm reasonableness.

But, again, chronicling the various instances of bubble-like behavior has also become passé. It will all make sense after it’s over, when the crowd recovers its senses “slowly, and one by one” as Mackay had it about 170 years ago.

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Alexis Renault 1 year ago Member's comment

Interesting read, I never though about it in this way, but I am still having a hard time wrapping my head around this concept. I don't see how higher wages can be a bad thing. I mean I understand the author's math, "all other things being equal." But there are always other variables at play, aren't there? But now I am doubting myself. This will take more time to ponder!

Barry Hochhauser 1 year ago Member's comment

Good article and a surpringly good comment thread. Thanks.

Moon Kil Woong 1 year ago Contributor's comment

Actually it will cause rotation into areas that grow from increased spending and that can raise prices with inflation. It also may aid the beaten down commodities market. The rest of the stock market will hurt as mentioned in this article, especially the service sector.

George Lipton 1 year ago Member's comment

Good insight.

Danielle Rogers 1 year ago Member's comment

A real eye opener of a read. The relationship of wage increase on stocks was completely counter intuitive to me.

Currency Trader 1 year ago Member's comment

"I don’t expect that #cryptocurrency in any of its current forms will survive because they don’t offer anything particularly useful compared to traditional money."

Michael Ashton, great article and I agree with everything you said, though you forgot one point with your quote above. #Cryptocurrencies like #bitcoin do offer one extremely useful benefit over traditional money. It's untraceable. Criminals and those who wish to hide their activities will pump millions into crypto currencies for this very reason alone. $BITCOMP

Moon Kil Woong 1 year ago Contributor's comment

My main concern is if you loose your password, it gets hacked or changed, or your account gets taken by government action you loose a lot of money. It has happened to many people and will happen to many more. It is far from a passive investment. It will get safer and easier, but not in its current form.

Michael Ashton 1 year ago Author's comment

That's true! I would even concede billions rather than millions. But to displace the dollar, that needs to be tens of trillions. I don't think (and I may be wrong!) that you can build a currency on dark commerce alone.

Currency Trader 1 year ago Member's comment

You are correct. Billions at least. I don't expect #cryptocurrencies to displace the dollar any time soon foro all the reasons you mentioned, but I see it being an alternate currency that isn't going anywhere

Michael Ashton 1 year ago Author's comment

I see it as a speculative trading vehicle. I don't see them ever really being currencies (the crypto folks would scream that they already are, but they're a long way from being actual money).

Currency Trader 1 year ago Member's comment

i suppose it would depend on what's definition of what money actually is. If you can be used to buy items, or if people would give you a different currency for it, would not that be enough to qualify? It would it my book.

Michael Ashton 1 year ago Author's comment

Well, by that definition a subway token is money (or was, back when they had subway tokens!). You could buy a newspaper in a bodega with one, and of course a subway or bus ride, and people would definitely give you money for it. Its value in units of goods was also vastly more stable than bitcoin. I think you need a higher standard; for example, you can buy just about ANY item with it (you can't, with bitcoin, at least not yet) regardless of size, and the value is reasonably stable over time. Store of value, medium of exchange, unit of account, right?

Currency Trader 1 year ago Member's comment

You make a fair point. I can't use #Bitcoin everywhere yet, but at the pace it's going, more and more stores will accept it. And you are right, I would not consider a subway token a currency, though I admit I had no idea you could purchase anything with it other than a subway ride - that was before my time! You are older than you look (joking).

Michael Ashton 1 year ago Author's comment

Ha! I remember when they started to phase out tokens, I refused to switch because you couldn't use a metrocard for anything else. Therefore, it was inferior to the token in my pocket. However, once they started discounting the metrocard, it overcame that option value pretty easily.

George Lipton 1 year ago Member's comment

Recently I found a subway token in my home. Took me a split second to recognize it for what it was. I wonder if it's a collectible now.

Bill Myers 1 year ago Member's comment

I'd rather have the good ol' dollar or even #gold than a #bitcoin. But I'd rather have a bitcoin over the currency of some of the more unstable regimes in the world.

Michael Ashton 1 year ago Author's comment

I'd rather have a knish over the currency of some of the more unstable regimes in the world! Bitcoin is certainly on the Zdollar-knish-USdollar continuum somewhere, but probably to the left of knish. At least I can eat a knish and know what it's worth.

Angry Old Lady 1 year ago Member's comment

You are a funny man Michael Ashton, I have been reading your work here for a long time but had no idea you had such a sense of humor. I like it!

Michael Ashton 1 year ago Author's comment

Thanks! You should have read my private comments when I used to write for clients of a bank or dealer. I was definitely less reverent. Occasionally got me into trouble. Writing for a 'net audience has tamed my prose somewhat.

Michael Ashton 1 year ago Author's comment

Incidentally, I'm not trying to sound argumentative...just to be provocative about what money is and whether bitcoin is there yet. Maybe it will be someday, but yesterday it went from 10000 to 11500 to 9000 to 10000. So it rallied 11.5%, fell 22%, and then rallied 11% to finish the day. That's not something I'm keeping in my wallet, although it may be fun to trade.

Michele Grant 1 year ago Member's comment

You didn't come off as argumentative at all. Personally I've warned all my friends away from #Bitcoin (and now I have to feel their wrath). But I stil say it's too unstable. Governments could ban it, hackers could steal it, a new "in" digital currency could surplant it, there are so many variables. And it's not like the FDIC will bail out anyone who loses their bitcoins. If it's gone, it's gone. Remember people, this is not a tangible object.

Michael Ashton 1 year ago Author's comment

That's how I feel. I am not a fan of thinking of gold as a currency, and currently think gold is a bit overpriced...but gold has it all over Bitcoin. IMO