03/31/11 Los Angeles, California – The Dow went up more than 70 points yesterday. The higher it goes, the more dangerous it becomes.
What’s the matter with this downturn? Shouldn’t it lower stock prices? Shouldn’t it empty tables at fancy restaurants? Shouldn’t it close down some of these luxury shops and make it easy to upgrade to business class?
Nah… The Great Correction is a failure. At least so far. It’s correcting only the people at the bottom.
Last week, we went shopping for a birthday present. We went around Bethesda, to Bloomingdales…to Saks…even to Tiffany’s. In one shoe store there were five middle-aged clerks, ready to help us. How could there be enough profit in a pair of shoes to support so many clerks? Then we found out…when Elizabeth bought a pair. Leaving the store, she picked up the wrong bag… The clerk called her. He offered to meet her to exchange bags. “Just look for me. I’ll be in my black Mercedes,” he said.
What? How can shoe clerks afford Mercedes?
Then, we went to Tiffany’s, where there were so many Asian customers, the clerks barely gave us the time of day.
Everywhere we went we found shockingly high prices – and people paying them.
Here in LA too…the numbers show typical families are poorer – thanks largely to falling house prices. But there are still many people at the top…with expensive cars…expensive habits…and the money to keep at it. And despite all the talk of downsizing chic – we don’t see much evidence of it.
At the upper income levels, there doesn’t seem to be much correction happening. And why should there be? The feds give them money.
Stocks have recovered most of their losses. Bonds – which should be worthless by now – still trade hands at par. Corporate profits are at record levels.
Where’s all this money coming from? You guessed it, the feds.
But pity the poor lumps at the bottom. The official unemployment rate has gone down…but most of the improvement in the numbers comes from dropping people off the list of those who are looking for work.
So, what happened to those who didn’t find jobs? They’re getting food-stamps (42 million of them at last count). Or, they’re living hand to mouth.
Many of them have now been out of work for so long they’ll probably never work seriously again.
In this case, the leftists are right. The feds have re-flated the rich folks’ bubble…largely at the expense of the poor. Even Fed governor Thomas Hoenig says so. From Bloomberg:
The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.
“Once again, there are signs that the world is building new economic imbalances and inflationary impulses,” Hoenig, the central bank’s longest-serving policy maker and lone dissenter at meetings last year, said in a speech today in London. “The longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth.”
Those “inflationary impulses” are making it hard for the middle classes to make ends meet.
Hershey’s is raising prices 10%. At least it’s being honest about it. A New York Times article tells us that many consumer brands are passing along “stealth inflation” by reducing sizes or lowering quality.
You go to the grocery story. You’re given opportunities to buy new “healthy” items – smaller, and more expensive. Or they are “green” – which makes you think that maybe they are better for the environment in some way. What they are for sure is more expensive.
Not that we blame the companies. They’re caught in a squeeze too. The Fed has driven up prices for their raw materials. Sugar, wheat, cotton, oil – almost all their costs are higher.
The big exception is labor. The cost of employing people has barely budged. Too bad. Because customers are also employees. If they don’t earn more in wages, how can they keep up with the inflationary cost increases?
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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And so it goes, the rich keep getting richer and the little guy takes it in the seat of the pants..nothing ever changes!
I suppose the lesson here for Bill is (and I think this comes from Yogi Barra)
Predictions are always difficult,… particularly when they are about the future.
He who bets on market direction is often wrong. He who buys good companies, that they understand, at reasonable prices seldom goes too far wrong.
He who whines all his life about things he can’t change and about the unfairness of life, wastes his life. (Okay for Bill since he is basically a member of the idle rich now, blogging for amusement only at this stage).
Who is Yogi Barra?
He’s that annoying bear with no pants.
“You don’t understand, Mr. Rearden. You are the one who has something to steal.”
as they clear out the lower classes, they’ll start with the next class up.
Good term. “stealth inflation” by reducing sizes or lowering quality.”
And we out here in lala land will listen to the next election cycle and believe that by voting for a particular party or person things are going to get better. Just living the fantasy.
It’s Yogi Berra. Lawrence Berra.
Tunnel vision helps! As i see it they`re still calling balls and strikes. And for the unemployed among us(with too much time to kill)…watching takes good care of 3 of 24.
“Stealth inflation”,heh! The umps best not be speeding up the game with bad calls;cuz I`ll be looking to label it so. Just sayin`.
The Mercedes was probably leased, and the salesman, though 50, is still living at home with his mom. But for a few minutes each month, he gets to live the dream. Meahwhile, he doesn’t have to worry about going over his 10,000 mile a year lease cap, because the car gets such lousy gas mileage he could never afford to fill the tank on his salesclerk salary let alone put over the cap miles on it. As for the job itself, no doubt the greatest fringe benefit lies in making fun of customers who are stupid enough to pay the kind of prices they charge, even though most of the merchandise is made in China (just like it is at WalMart!)
Notice how no politician says Lower Class? It’s always; “Lower Middle Class” How can there be a Middle Class without being sandwiched between two classes? By inference, there must be a Lower Class!
With this brilliant logic, and in looking around at my financially embarrassed circumstances, I note that I seem to be one of the very few in the Lower Class. Not to be confused with Low Class because I live my life with dignity and integrity, generally avoiding despicable acts.
Besides, my Lower Class is getting crowded because the economy is forcing the Middle Class into my Class. It’s getting so crowded in fact, I’m thinking of inventing a whole new Class. How about Professionally Poor? Has a certain status, I think…
I’ve been to these stores. They’re all high end. Esp. in Bethesda, a wealthy community. It’s not uncommon for clerks to have a Mercedes. Plus, all models aren’t that pricey. The starter Mercedes are quite affordable and if pd for over a period of 36 months, doable. Not much worse than the top Honda.
“the rich get richer and the poor get poorer, in the meantime, in between time, ain’t we got love”
D&D,
Here in the U.S. we like to pretend that society is almost entirely, or is, ‘middle class’ – this does away with the tension between working class on one hand and capitalist on the other.
It is, though, a pretense – most ‘middle class’ Americans are in fact working class.
It sounds to me that you are definitely a member of the reserve army of labor though at an extreme you may be a member of the lumpenproletariat [which can be either very negative (Marx) or somewhat positive (Fanon)].
“Not that we blame the companies”
Can’t agree. The companies have choices. They can watch their margins get eaten, they can be honest and put up prices in the face of price sensitive consumers or they can lie to/ cheat /mislead /defraud their customers. By pretending their product is something other than it is they are no better than the investment banks flogging CDOs, the accountants who place hands on hearts and sign off mark to myth, the rating agencies that give AAA ratings to junk and the politicians that won’t level with the public. To say that I had to lie and cheat to survive is a cop out.