I want to draw your attention to what to my eye is an absolutely brilliant white paper (PDF) from James Montier of GMO, “The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns”. Here is as good a summary as any:
We have an increasingly fissured economy with low growth, lower productivity, and even lower real wage growth. An economy characterised starkly by growing differences between the haves and have-nots.
It is full of intriguing charts and graphs and interesting remarks. For example:
All the employment growth we are seeing is coming from the low productivity sectors. On top of this, the paltry gains in income that are being made are all going to the top 10%. This is not what a booming economy should feel like.
As if this wasn’t bad enough, when you dig down into the market you will find that a staggering 25% to
30% of firms are actually making a loss!
We aren’t the only ones to voice concerns in this realm. The Bank of International Settlements (BIS) (the central bankers’ central bank) has also noted similar concerns (see Exhibit 19). It has shown the number of “Zombie” firms (defined as firms aged at least 10 years old with an EBIT to net interest expense below 1) has soared.
Read the whole thing.