Thursday, November 19, 2009

How Far Will Productivity Take Us? Main Street & Wall Street's Differing Perceptions

Businesses have been benefiting from cost cutting and productivity the past couple of quarters.  Large businesses are also benefiting from a weak dollar allowing them to post large currency gains on overseas earnings.

Employers have in large part achieved this rise in productivity through moving jobs overseas - bad for the U.S. consumer, laying off workers - bad for the U.S consumer and thirdly through efficient use of networking technology, reducing travel costs - bad for the U.S. economy.

Secondly, government has made abundantly clear that their approach is clearcut handouts for financial firms and no clear cut programs to help consumers.

It is my view that amidst this abundance of optimism on Wall Street, Main Street has not participated in this rally, which has enriched  the fat cats only further.  Main Street is hurting in a way that Wall Street just cannot relate to.

Wall Street's view of the economy extends about 20 miles around New York City.  New York malls are packed, the city is flush with bailout bonuses and Hampton sales are booming.  Housing prices have not declined as the average New Yorker's net worth coupled with generous severance packages positions them to survive the downturn well.  Until now. 

Unemployment benefits will start to run out soon.  While Main Street recession started in 2006-7, Wall Street's recession started in October 2008.  We are just now entering the period where New Yorkers will start to feel the pain. 

Living in New York, it is evident the city is faring well, but not so much that it can survive unscathed.  Many stores are empty, even on thoroughfares like Broadway & Madison Ave.

What Wall streeters are missing is that the economy is a reflection of Main Street.  The government had an opportunity to fix this problem.  It will now be apparent that we are headed down a path of dollar debasement, debt explosion.

Despite the street's view that this will lead to inflationary asset prices, they are about to find out that the consumer will refuse to participate, earnings will suffer and certain asset prices will correct substantially.

The true bottom lies ahead of  us, unfortunately. 

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