To: ild who wrote (23961 ) 1/2/2005 7:31:12 AM From: russwinter Respond to CI picks up the Bully early recipient/Joe Sixpack late reciever scenario. Or course my argument is that Joe is being hurt now by easy money inflation: What you see above is the stock price performance relationship between Nordstrom and Wal-Mart since 2000. These two really traded in a relative performance band between 2000 and early 2003. But as the Fed and the administration really stepped on the gas in early '03 in terms of flooding the system with liquidity and bending over backwards to accommodate, Nordstrom stock price took off like a rocket relative to Wal-Mart. Clearly, we do not mean to be wealth discriminatory or elitist in any sense of the word, but we are looking at two retailers whose clientele are derived from two very differing wealth demographics. What this chart tells is us is that the lower wealth and income strata in the US have not benefited from historic Fed and Administration accommodation efforts as has the upper income strata. And quite naturally, the lower wealth strata own less "capital" (stocks, houses, bonds) than does the upper wealth demographic. So, in essence, the Fed is "stimulating" the capital owners that are Nordie's customers, but they aren't doing a whole lot for the weak or non-capital owners that are Wal-Mart's clientele. Hence the dichotomy of revenue growth results. Simple enough? Watch their repo activity, coupon pass activity and the weekly Fed custodial holdings of US financial assets for the foreign sector for clues as to liquidity creation intensity. This is what’s influencing stock and housing values over the very short term, but finding very little traction in terms of goosing the real economy. In terms of Wal-Mart, it appears that their customers are going to need an improving labor and wage environment. Almost ironically as of late, the Fed has actually been withdrawing stimulus and liquidity from the real economy vis-à-vis the Fed Funds rate increases, but alternatively it has been pouring liquidity into the financial markets via a very heightened level of repurchase and coupon pass activity over the past few months. (Has the Fed been doing this recently to potentially blunt or divert attention from the important goings on at Fannie Mae? After all, they have somewhere between 9 and 13 billion reasons to be a little bit worried.) In our minds, the Fed is simply exacerbating the US domestic wealth dichotomy of the moment. A short term panacea, but a longer term erosion of the broad economic base.
