Its all about growth. Without wage growth and a strong middle-class you can only financial engineer the markets so much.
People get mad and defensive when they hear the American Dream is dead.
Bogle knows it is. So do Buffet and Yellen.
If you look at the Japanese market, you can get a prediction of what could, or is, happening here. We have rampant global deflation. There is a global surplus of workers, and workers are a major commodity that factor into prices. That worker surplus is growing, not slowing.
When you look at upcoming demographic changes, the world is producing lower wage earners, and not higher wage earners. Changing what you pay a worker beyond what they can produce, does not mean you get a bunch of higher wage workers.
In the USA, there are less high-skill workers as work gets outsourced and workers gain productivity with new software and better hardware. The few (as a percentage) high wage earners left, will be required to pay additional taxes to support the rest of the lower paid workers. It becomes a death spiral as the incentive to not work replaces the incentive to work.
The USA is getting ready to retire the greatest generation that it has ever produced, the baby boomers. These people are the highest wage earners that the US, and possibly the world, has ever seen. The next generation will not have the same wages, and 3 people making $33K a year pay a lot less taxes than one person making $100K a year. That downward wage curve is going to start to go down exponentially after that generation retires.
As you look to company earnings reports, many companies are reporting stagnant top line revenue growth. Companies like Starbucks may beat revenue forecasts, but how does that help wages and job growth on a macro level? We get a bunch of people making $14 an hour, not $50+ an hour like the former union workers would be making.
Many of the lower skill workers will be replaced with robots, and other technologies. Even the person at the drive up window taking your order can be sourced in a different country, or by a self-service kiosk that you pay at. Taco Bell has been experimenting with robots to make their food. Bus and truck drivers (and trains?) are soon to become obsolete with driver-less vehicles. Even restaurant servers will have to forgo their $20+ an hour cash tips so that the cooks can make $2 an hour more. As a trade-off, the servers will get an additional $3 in taxable wages per hour. Overall, wages are headed down, not up.
To get any sort of price flexibility, companies can reduce the amount of proprietary widgets they make, and increase prices. That is not really natural inflation, it is an induced supply shortage. Only one company makes an I-phone, and the hurdle for getting into any business is getting steeper. Most other products are commodities, and can be produced by any company, anywhere. The lowest bidder will sell the most, other companies will lower their prices to compete.
Some self-motivated individuals may start smaller companies to survive. Many of these one-person companies will be a cash only business, with no taxes being paid or income being reported. They will be low revenue companies, but will produce enough revenue to support the families working in them. It will not increase wages to the mass public nor increase the tax base.
There will always be ways to grow the stock market. Stock buy-backs help demand for the company stock, and also increase earnings per share. That helps executives and stock holders, but does not increase demand for goods and services nor actual nominal profits. 50-year mortgages, or leases, will help housing ownership similar to the way 7-year car loans and leasing has helped the automotive industry.
If your early retirement plan is based on 9% average market yields, you better have a backup plan.
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