Monday, January 10, 2011

I Hate to Be the Bearer of Bad News, But...

... In light of the boom in equities in the latter part of 2010 and the successful holiday season for retailers, I feel I ought to offer some observations on the economy's position. For starters, the Federal Reserve will continue with its purchases of long-term debt in hopes of stimulating the economy further. Vice Chair of the Board of Governors, Janet Yellen, recently stated that she expected QE2 to create around 700,000 jobs for the economy, which would be peachy, obviously. Bernanke, while not offering completely opposing comments, had a more sobering view of the future. In front of the Senate Budget Committee he said that unemployment will probably be around 8% in two years. The "natural rate of unemployment," a term economists use to describe the rate that would exist if the economy were running at full capacity, is around 5.5%. So, in two years, we're still a ways off from where we want to be. Also, keep in mind that where we were just before the crash and crisis, was unrealistic. Don't expect housing prices to reach those levels for a long time, nor will unemployment, for that matter.

An article in the telegraph inspired me to take a look at the performances of some retail stocks. Why? Well, it would seem that while luxury goods have been doing exceptionally well this year, their success has drowned out some of the bad news coming from middle and low income retailers. Numbers? Here's but a sampling:

Louis Vuitton up 46.1% last year
Coach up 38%

On the other hand:

Best Buy down 9.8%
Walmart down 1.7%

What am I getting at here? The ever-present shadow of income inequality hangs over our recovery, and perhaps we should invent a new term: recovery inequality. While housing is still languishing, Wall Street seems to be doing well. That might irk some people, but objectively speaking, it's better to have Wall Street doing good business than not, so we'll chalk that up as a good thing. With GM's IPO behind us and already up 15%, and Ford succeeding despite not receiving a bail-out, perhaps a return to greatness for the American automaker is under way. Well.... that might be a bit optimistic, but let's hope that industry is on the way up and that the REST of retail catches up with the higher priced boutiques.

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