Growth and interest rates usually fit hand-in-glove and are emblematic of demand for goods and funds. Logic dictates, however, that with interest rates low and demand un-impactful, the transition from recession to full-on economic boom will take some more time.
Congress,
and Federal legislatures worldwide, seem caught up in the notion of low debt,
austerity, and tax fairness. But in an
era of "fairness" the spender, the risk-taker, loses his
advantage. We should be mindful that the
transitional dampening effect of balanced budgets is resulting in restrictive
foreign trade, a high dollar, price deflation, and a cacophony of jingoistic
rhetoric.
The
consumer, for his part, has been marginalized because he has no alternative for
risk-averse capital other than the stock market.
Wages
and prices for commodities have yet to see any significant inflationary bias,
even though secular trend cycles would indicate that the time is right for an
upwards shift in each.
Ironically, current initiatives to engage in global trade are being met with vocal resistance from the public, the implications of which might be to serve political ideology, but also to subvert the necessity of creating new jobs and new outlets for product in a global marketplace. Curiously, data reported last week confirmed that "small business" activity, including their confidence in the future, was up for the past year in all areas except top-line revenue or sales growth!!
Sometimes we get caught up in the confusion over profitability, consumerism, and competition. It's easy to manufacture and manipulate stock market profitability. It is much more difficult, though, to concoct demand where none exists, and where the private sector has abdicated responsibility to build a "better mousetrap".
Thus, the equity market has to be very careful to distinguish between inflated (yet highly welcome) valuations, and unrealistic "profit" margins that simply reflect better year-over-year comparisons. Without top line sales demand increases, all we're really seeing is an improvement in calibrations and statistics.
Skewed
definitions
While
we admire the bottom line as much as the next guy, we are suspicious that we
are just treading water in the stock averages and the economy both.
Think
about it. We have had interest rates at
historic lows for over five years. The
impact has not been as "historic” as we might have expected, however,
although the equity markets surely have found a willing source of alternative savings. But where have the capital expenditure
budgets been? Aside from stock buy-backs
and repurchases, there has been relatively little outlay for big bets, risk,
and new research and development.
Those who simply "play the market", rather than making direct investments in the economy, are complicit in effecting a diversion of funds that staggeringly halt economic revitalization. By their actions, real incentives for change are postponed in lieu of pocketing paper profits and portfolio aggrandizement.
It
seems that we as a nation are averse to spending and borrowing patterns at
almost all costs, particularly those profligate behaviors that got us into the
big mess in the first place. And
rightfully so. No one that I know is
advocating for a return to irrational exuberance, unimpeded spending and
borrowing, or an epoch of greed and selfishness.
Remember, though, that a capitalist without customers quickly becomes an out-of-work capitalist!!
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