This page has been archived and commenting is disabled.
Behind the Sentiment Disparity: Main Street vs. Wall Street
- Bank of America
- Bank of America
- BLS
- Bureau of Labor Statistics
- Consumer Sentiment
- Corporate America
- Foreclosures
- Gallup
- Gross Domestic Product
- headlines
- Home Equity
- Housing Market
- Housing Prices
- Main Street
- Merrill
- Merrill Lynch
- Michigan
- Real estate
- recovery
- Sovereign Debt
- Unemployment
- University Of Michigan
By Economic Forecasts & Opinions
According to a gauge derived from data compiled by The American Association of Individual Investors (AAII), bullishness on U.S. stocks is beginning to emerge after the market’s rally in the past year.
The latest AAII Sentiment Survey reading shows optimists outweighed pessimists for the first time since January 2008, three months after the previous bull market ended. (See Chart from Bloomberg)
A Disparity in Sentiment
In contrast to the cheery mood of the markets, the latest readings from consumers and small business owners indicate economic sentiment isn’t improving, despite signs of a factory rebound and less gloom on the labor front.
The National Federation of Independent Business said its optimism index for small business owners fell back in February to its December reading. The IBD/TIPP Economic Optimism Index dropped 3% in March, well below its average of the past year.
Meanwhile, The U.S. consumer sentiment also dipped in early March, according to the University of Michigan Consumer Sentiment Index.
'Never Seen Anything Like It'
This divergence has got the Wall Street scratching its collective head. In a recent MarketWatch article, Mr. Mark Hulbert cited a Wall Street advisor as saying:
"The disparity between hope on Wall Street and malaise on Main Street continues. I have never seen anything like it."
In short, the disparity may be deciphered in one word – liquidity – which Wall Street has plenty of from government handouts, while main street remains strapped from the bleak prospects in both the job and housing markets.
Behind The Productivity and Profit Gain
Corporations are now seeing higher profits mainly through cost, inventory, and workforce reductions. It is not a coincidence that the U.S. productivity rose by an outsized 6.9% last quarter, while the cash U.S. corporations have on hand equals about one-tenth of the annualized gross domestic product (GDP) over the past twelve months -- near a record high, according to an IHS analysis of Commerce Department data.
This type of “growth” is not real and entirely unsustainable, and at some point, companies won't be able to get their employees to keep producing more.
For Middle America, the stagnant housing market and the lack of positive job growth are two factors hindering a more robust reading for consumer sentiment. An analysis of these two factors will offer some clues to Wall Street as to what Main Street is concerned about regarding the economy.
Home Not So Sweet Home
In the fourth quarter, national home prices fell 1.1% compared with the third quarter, according to Standard & Poor's. Meanwhile, nearly one in four of all Americans with a mortgage - more than 11.3 million homeowners - are underwater.
The rising tide of foreclosures, bankruptcies and so-called "strategic defaults" where homeowners just stop paying mortgages on homes worth less than their associated liability, has become a well-recognized phenomenon.
About That Unemployment Rate ….
The picture in the job market does not offer much consolation either. After topping 10% in the last three months of 2009, the unemployment rate in the United States retreated to 9.7% in January, and holding steady - slightly better than expected.
Nevertheless, economists said that an exodus of discouraged workers from the job market has kept the U.S. unemployment rate from climbing above 10%, and the actual unemployment rate is higher than reported by the official numbers.
20% Under-employed
Moreover, what is not in the headlines is that near one in five, or about 30 million Americans are under-employed.
The BLS under-employment rate (U-6) in February – 16.8% seasonally adjusted – was among the highest rates that the Bureau of Labor Statistics (BLS) has recorded since it started tracking the statistic in 1994. A recent Gallup poll puts the figure at almost 20%.
A Decade Low Employment Level
Even more telling is the ADP National Employment Report. The national employment level is at a decade low as indicated by data from both ADP and BLS ((See Chart from ADP). Meanwhile, the U.S. Employment to Population Ratio also dipped to the lowest level, at 57.9% in February, not seen since 1984.
The Old Normal = 10 Million New Jobs
Analysts estimate returning to pre-recession employment levels and keeping up with working-age population growth will require the creation of 10 million or more jobs. Under the administration's own estimate, the economy will create an average of just 95,000 jobs a month this year; that's far from enough to make much of a difference in the jobless landscape.
…. And Beyond 2015
Generally it takes a 2 percentage point rise in the GDP above a "normal" level (about 2.5%) to drive the jobless rate down each single percentage point. Taking into consideration of the current near 10% unemployment level and the GDP growth generally forecast at a slower pace of 2% to 3%, it could take five or more years for employment to get back to prerecession 2007 levels.
Moody’s Economy.com also expects the unemployment rate to resume rising over the next few months, “peaking near 10.5% in the third quarter, ” while Standard & Poor's said a return to the pre-recession employment rate is unlikely until 2015 at the earliest.
Housing Not Bottomed Yet
The housing market is yet to revive as many analysts predict a further price drop. The latest pending home sale data, a leading indicator, suggests weakness still in the housing market. According to the National Association of Realtors, the number of contracts to buy previously owned U.S. homes fell 7.6% in January.
In addition, there appear to be a growing backlog of potential foreclosures. As publicized recently in the Time that strapped consumers are paying credit-card bills before mortgages. This change of math stems primarily from falling housing prices, loan-modification programs and restricted credit.
In any case, U.S. households’ net worth in real estate was down by 53.3% from the end of 2006.
Optimism Pinned on Recovery
Right now, it seems the markets are shrugging off the sovereign debt crisis in Europe, and basing their optimism on the expectation of a sustained economic recovery. However, in the U.S., consumer spending still drives about 70% of the GDP growth. And for consumers, job and home equity gloom pretty much means a chock hold on spending, which presents a challenge to the business profit growth in the medium term.
From that perspective, it is probably premature for Bank of America Merrill Lynch to suggest “We suspect confidence will recover as we begin to see a turn in the labor market,” partly based on the surprise retail sales (minus autos) jump of 0.8% in the February blizzard.
Market Exuberance & Correction
Meanwhile, the AAII cautioned that the spread between bullish and bearish sentiment in its index is now at +20 percentage points, more than double the historical average of +9 percentage points.
Historically, similarly wide spreads preceded the mini-corrections of August 2009 and January 2010. In both instances, the spread stayed at similar levels for a period of three weeks before the market topped and pulled back.
“The trouble, in my opinion, with corporate America today, is that everything is thought of in quarters.” ~ Henry Kravis
(Hat Tip: dvolatility, Shane Drozdowski)
Economic Forecasts & Opinions
»
- advertisements -
a very perceptive analysis with an entirely new set of tables and statistics that basically convey the same theme that's been bandied about this site and many others for the past several months. this is not to challenge the obvious credibility of the message, but I find an historical, in depth perspective more rewarding than the temporally relevant and yet increasingly redundant and exasperating replications of an acknowledged fatal malaise the prognosis of which remains essentially the same-dead, expired, departed, extinct.....
Vampire Squids did not exist or play a significant role in the past.
So Does Obama Really Support "Small Business"?
In March of 2005, the Small Business Administration (SBA) Office of Inspector General found large businesses had fraudulently represented themselves as small businesses to illegally receive federal small business contracts. Report 5-16, stated large businesses had committed fraud by making "false certifications," and "improper certifications." (http://www.asbl.com/documents/05-16.pdf)
On Friday, March 12, the General Services Administration (GSA) destroyed all of the information that had been used in that investigation.
http://www.huffingtonpost.com/lloyd-chapman/obama-administration-dest_b_...
As they would say at year end review time on the old Dave Foley/Phil Hartmann show News Radio:
Someone gets the big bonus and someone gets the shaft.
The bullish USD weekly chart exerts its influence yet again and DOW / SP500 / EURO daily chart now give bearish warnings.
http://www.zerohedge.com/forum/market-outlook-0
The wealth gap we see right now is THE bubble.
The wealthy have nothing, entire fortunes built on nothing but debt. What is really confusing is that people are completely blind to the fact that there's no way that anyone can possibly be productive enough to fill the debt gap that currently exists.
That debt might as well be an IOU for a million bazillion peanuts. You couldn't possibly begin to ever farm that many peanuts in a lifetime, but we grant these people real resources in return for them not trying to cash it in when they basically wrote it themselves on our stationary.
It's retarded.
A Sinking Feeling
A bit fewer than half of Americans count themselves as middle class -- but many of them aren't sure how long it will last: Among people who say they're in the middle class now, four in 10 also say they're struggling to remain there in this difficult economy.
http://abcnews.go.com/WN/abc-world-news-poll-us-middle-class-concerns/st...
WHAT will it take before this administration throws Timmay out the door?? Do millions need to hit the streets in protest for them to do what is blantantly RIGHT?
“Quite a few observers… have been stunned and frustrated at the refusal to investigate what was almost certain accounting fraud at Lehman. ….The unraveling isn’t merely implicating Fuld (Lehman CEO) and his recent succession of CFOs, or its accounting firm, Ernst & Young, as might be expected. It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations….
We need to demand an immediate release of the e-mails, phone records, and meeting notes from the NY Fed and key Lehman principals regarding the NY Fed’s review of Lehman’s solvency. If, as things appear now, Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down ….. at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties.
This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large.
And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets. If so, he is not fit to be Treasury secretary or hold any office related to financial supervision and should resign immediately.
You had to know when you he couldn't use turbo tax that he was utterly incompetent to be in any role of financial oversight. When is it going to be so glaringly obvious that the only thing the federal reserve banks do is grease the palms of their member banks that someone will actually do something about it?
I've used TurboTax for quite a few years and there are times where it leaves me scratching my head trying to figure out what to enter - but I dig into the underlying forms and figure it out. Now if that's too much for the Treasury Secretary, maybe he should direct his underlings at the IRS to make the doggone forms simple enough that he can use them. Yeah, I'm giving him the benefit of the doubt that he just made an error entering the data, not that he was willfully trying to evade taxes. No, I'd never try insinuate that.
In fact, I'd like to propose that no changes can be made to the tax law unless the sponsoring congressman/senator can accurately fill out the forms required for the change.
"The disparity between hope on Wall Street and malaise on Main Street continues. I have never seen anything like it."
The disparity is caused by those who smoke the Hopium....and those who merely watch what is unfolding before their eyes.
DON'T SMOKE THE HOPIUM!
Great post. Congress has helped wall street suck the wealth into new york. We have spent the last 2 decades working as slaves for wall street bankers.
The Fed expanded the money supply electronicly instead of actually printing the stuff. You then short Gold and buy the crap out of the Fut's and you get atleast a bit of reasonable price stability. The sell-off of 2008-early 2009 was a scam---a liquidity shakedown and the entire market was had for half-price after every company got lean and mean after their "restructuring" ( and by that I mean firing everyone, unless your a bank and can change the accounting rules to show a profit). If the Fed had really wanted to help they would have PRINTED the cash and not just credited accounts to buy their own debt back. They are starving Main St. of cash while Wall St. gorges itself on an ever increasing account balances---and as long as they leave it in the "system" and don't try to actually cash out it just grows and grows--except here in the real world where everyone else lives. It's a fucking lie and people are starting to wake up--It's time to John Galt their asses.
No comment. The posting speaks for itself.
Wow, no comments?
Good analysis, but the link to your site is busted!
The problem is that it's been "commented on" to death, and not enough action has been taken by us commenters.
By now in a smaller country, like Greece, tens of thousands would be in the streets with more than signs in their hands.
Those who formed the United States must have done so knowing that a central government organized, armed and impervious to the demands of its citizens, that are spread out over millions of square miles would be powerless.
=