The Orchid Indicator
Here we are, with 91% of all equity holdings in the U.S. held by the top 20% income group in the country. The top 1% own 38% of all the equity valuation. The lower 80% of the income strata own the asset class that the Fed wants so desperately to reflate (and with unmitigated success to be sure!). That same 80% are now being crushed by the indirect impacts of monetary policy -- the ones that Bernanke dismisses -- and are also ones that are seeing their cash flow drained by the surging gas and grocery bill. Geez -- real wages deflated 0.5% in November, by 0.1% in December, and by what looks like at least 0.3% in January. The last time real work-based income fell three months in a row was when the economy was plumbing the recession's depths from April to June of 2009."
-- David Rosenberg, Gluskin Sheff
I have been raising orchids for more than 20 years, ever since I began studying them while I was recovering from a harness racing accident in 1990. As a result, I know many of the local growers in South Florida.
I had a long conversation with one of my main guys, Orchid Bob, on Saturday morning at a local green market.
An orchid is a generally disposable purchase and, as such, is a reasonably good gauge of the state of consumers' discretionary spending patterns.
Orchid Bob's business has taken a dramatic turn for the worse over the last few months.
Bob did about $15,000 of business in November 2009 and approximately $20,000 in December 2009.
His business starting weakening three months ago: He did only $8,000 to $10,000 in November 2010 (down nearly 40% year over year). In the following month, the seasonally strong December 2010 period, Orchid Bob only sold $5,000 worth of orchids (down by an enormous 75% year over year).
Orchid Bob's business has continued to weaken, as during last month (January 2011), he sold a measly $3,000 during the first 30 days of this new year.
Bob's business is a local one, so he would have been unaffected by the Northeast and Midwest snowfalls and by the numerous flight cancellations. His clientele are generally not fancy Palm Beachers, but rather middle classers.
Orchid Bob's business weakness has been confirmed by poor sales at the other growers I met with or spoke to over the weekend; I plan to stay on top of my orchid channel checks in the months ahead.
This highly anecdotal and small sampling may be meaningless, or it might be meaningful. My suspicion is that many small businesses face a fate similar to Bob's.
Time will tell whether screwflation will or already is starting to take hold.
What I do know is that Bob the Orchid Man has met screwflation head-on and his orchid business is now in a depression.
We should be closely monitoring the relative and absolute performance of the Retail HOLDRS (RTH - commentary - Trade Now) in the weeks ahead to judge whether, as I continue to suspect, the consumer will be the Achilles' heel of the current domestic economic recovery.
Look out the window. More and more Americans are being left behind in an economy that is being divided ever more starkly between the haves and the have-nots. Not only are millions of people jobless and millions more underemployed, but more and more of the so-called fringe benefits and public services that help make life livable, or even bearable, in a modern society are being put to the torch....
Standards of living for the people on the wrong side of the economic divide are being ratcheted lower and will remain that way for many years to come. Forget the fairy tales being spun by politicians in both parties -- that somehow they can impose service cuts that are drastic enough to bring federal and local budgets into balance while at the same time developing economic growth strong enough to support a robust middle class. It would take a Bernie Madoff to do that....
The U.S. cannot cut its way out of this crisis. Instead of trying to figure out how to keep 4-year-olds out of pre-kindergarten classes, or how to withhold life-saving treatments from Medicaid recipients, or how to cheat the elderly out of their Social Security, the nation's leaders should be trying seriously to figure out what to do about the future of the American work force.
Enormous numbers of workers are in grave danger of being left behind permanently. Businesses have figured out how to prosper without putting the unemployed back to work in jobs that pay well and offer decent benefits.
Corporate profits and the stock markets are way up. Businesses are sitting atop mountains of cash. Put people back to work? Forget about it. Has anyone bothered to notice that much of those profits are the result of aggressive payroll-cutting -- companies making do with fewer, less well-paid and harder-working employees?
For American corporations, the action is increasingly elsewhere. Their interests are not the same as those of workers, or the country as a whole. As Harold Meyerson put it in The American Prospect: "Our corporations don't need us anymore. Half their revenues come from abroad. Their products, increasingly, come from abroad as well."
American workers are in a world of hurt.
-- Bob Herbert, "A Terrible Divide" (New York Times op-ed, Feb. 7, 2011)
The schism between the middle class (or screwees) and flush corporations is growing ever more conspicuous. This is not meant to be a statement of class warfare or a political view; rather it is meant as an accurate economic statement.
The market has clearly looked through and dismissed this issue and is ignoring its potential consequences, as it focuses on more constructive developments (corporate profit growth, an expansion in merger and acquisition activity, positive stock price momentum, etc.).
Stay tuned to see whether screwflation plays out and challenges the self-sustaining recovery thesis that has provided the foundation for the current bull market. |
