In his column today Paul Krugman flicked at a point about the “soaring” stock market that deserves a bit more attention:

The recent rise in the market has been largely driven by a small number of technology giants. And the market values of these companies have very little to do with their current profits, let alone the state of the economy in general. Instead, they’re all about investor perceptions of the fairly distant future.

Take the example of Apple, with its $2 trillion valuation. Apple has a price-earnings ratio — the ratio of its market valuation to its profits — of about 33. One way to look at that number is that only around 3 percent of the value investors place on the company reflects the money they expect it to make over the course of the next year. As long as they expect Apple to be profitable years from now, they barely care what will happen to the U.S. economy over the next few quarters.

Longtime readers know that when I say something “deserves a bit more attention,” that means you’re about to see a chart. Here it is:

This is an S&P 500 index with tech stocks removed and adjusted for inflation. You can see two things. First, over the past three years it’s not very impressive. Second, it plunged in March thanks to COVID-19 and has never recovered completely.

(And that’s even though this index includes powerhouses like Amazon, Google, and Facebook, none of which are categorized as “information technology.”)

In one sense you don’t want to make too much of this. You can always remove the top performer from a broad stock index and produce a weaker looking trend. Still, this is more dramatic than usual. This isn’t just weaker looking, it’s practically flat. The collective performance of literally everything in the United States is kind of dismal except for companies like Microsoft, Apple, and Oracle.

So when someone asks why the stock market is doing so great even though we’re in the middle of a massive pandemic, this is part of the answer: it’s not doing so great. Aside from tech stocks, the market has been ho-hum over the past few years and is still down 4 percent from its pre-pandemic level. Investors obviously have some confidence that the economy will rebound once we approve a vaccine and the pandemic is finally sidelined—as they should—but they’re hardly being cheerleaders for the overall economy. They just like tech stocks.

This is Stripey pretending to be a lion out on the savannah. It’s also a good object lesson in the old saying that the best camera is the one you have with you. I didn’t bring my camera along on this particular day, so I had to shoot this with my cell phone. Is it as good as a picture taken with my usual camera? It’s better! Because the picture taken with my usual camera doesn’t exist.

Our beloved postmaster general testified before the Senate today:

“We will scour every plant each night leading up to Election Day,” Mr. DeJoy said in response to a question from Senator Mitt Romney, Republican of Utah, as he testified for over two hours before the Senate Homeland Security and Governmental Affairs Committee….“There has been no changes to any policies with regard to election mail,” Mr. DeJoy told the lawmakers, adding, “The Postal Service is fully capable and committed to delivering the nation’s election mail fully and on time.”

With the caveat that we should all keep a close eye on this stuff over the next couple of months, I think this represents an almost complete victory in the post office wars. It’s the handling and delivery of mail ballots that’s always been the biggest issue, not the dismantling of mail sorting machines, which has been ongoing for years:

Purchased when letters and not packages made up a greater share of postal work, the bulky and aging machines can be expensive to maintain and take up floor space postal leaders say would be better devoted to boxes. Removing underused machines would make the overall system more efficient, postal leaders say. The USPS has cut back on mail-sorting equipment for years since mail volume began to decline in the 2000s.

The year 2001 was the peak year for first class mail volume, which has declined by nearly half since then:

Ditto for mailboxes, which are routinely removed if daily usage falls below 25 pieces of mail:

The real issue has always been overtime rules and prioritization of mail ballots. A week ago the Postal Service was warning 46 states that it couldn’t guarantee delivery of all mail ballots in time for the November election. If DeJoy is now saying he is “committed to delivering the nation’s election mail fully and on time,” that represents a major victory for the cause of voting by mail. At this point we just need to make sure he’s as good as his word.

“U.S. Existing-Home Sales Surged 24.7% in July on Low Rates” blares the Wall Street Journal this morning. That sounded pretty impressive until I got hold of the underlying data from the National Association of Realtors:

Technically, it’s true that existing home sales increased a lot from June to July. But the real story is less dramatic: home sales took a big hit when COVID-19 first hit and then recovered quickly. That might be an interesting story in itself, but it’s definitely not a story of booming home sales.

As always, beware of headlines that seem too good to be true.

Here’s the coronavirus death toll through August 20. The raw data from Johns Hopkins is here.

With the economy in shock thanks to COVID-19, the obvious response from the federal government is to spend lots of money to cushion the blow. This would not only help out businesses and individuals—a worthy end in itself—but massive deficit spending would also help kick start the economy as a whole. Still, there’s a limit to how much we can blow up the deficit. The question is: What is that limit?

The downside of deficit spending is that if you do too much of it you’ll touch off a surge of inflation. This is what limits our tolerance for deficits when the economy is already in good shape. But what if the economy is in a deep recession? Then we should spend whatever it takes to get the economy fully back on its feet. There’s no reason to stop until we start to see signs of growing inflation.

So what about now? Obviously we’re in a deep recession that calls for enormous spending. Nonetheless, we need some touchstone that tells us if spending is out of hand and we’re running up deficits too quickly. That touchstone is inflationary expectations, and there are lots of ways of estimating it. Here’s a whole bunch of them. First off is what’s known as the 5-year/5-year forward inflation expectation rate:

Next up is the 10-year breakeven rate:

Here is the Cleveland Fed’s 10-year forecast:

Here’s a forecast from the Fed Board of Governors:

Here’s the consensus forecast from professional economists:

Here are consumer expectations:

And here are business expectations:

Bottom line: Nobody, literally nobody, sees even the slightest inflationary pressure causing a problem over the next ten years. The average forecast for 1-10 years is under 2 percent, about the same as it’s been for the past decade.

But wait! What if all these forecasts are wrong? Then we’ll get plenty of warning. Inflationary expectations will rise steadily until they get to a point where policymakers need to start getting worried. Right now, though, we aren’t within light years of that. With an economy in the doldrums—and a worldwide economy that’s obviously not going to help us out—we should be spending huge amounts of money and running up the deficit until we get at least a flicker of rising inflation. This is why Fed Chair Jay Powell is practically begging Congress to spend more money.

We need to spend lots of money. We need to run big deficits. It’s the only way to save the economy, and we shouldn’t even think about slowing down until inflationary pressures start to seriously rise. That’s probably at least a year away, maybe more.

This is a yellow sweetclover. It’s invasive, but good for bees and quite drought tolerant. It can also be eaten by cows and suchlike, but apparently it tastes pretty bad. They’ll eat it, but only if nothing better is around.

Nothing new to report for August. My M-protein level has been rock steady for the past few months, which means the multiple myeloma is under control for now.

Vincenzo Tersigni/Eidon Press via ZUMA

Is there anybody left in the Trump administration who hasn’t been indicted for some grift or another?

Federal prosecutors in New York on Thursday unsealed criminal charges against Stephen K. Bannon, President Trump’s former chief strategist, and three other men they alleged defrauded hundreds of thousands of donors using an online crowdfunding campaign that was advertised as raising money to build a wall on the U.S. border with Mexico….Prosecutors alleged they and two others routed payments from the campaign through the non-profit and another shell company and disguised them with fake invoices to help keep their personal pay secret. All four were arrested Thursday and are expected to make court appearances later in the day. They are charged with conspiracy to commit wire fraud and money laundering.

I suppose they can all hold out hope for a presidential pardon.

Here’s the coronavirus death toll through August 19. The raw data from Johns Hopkins is here.