ZT: America Uncoupled

注：这篇文章有点长，但是写的很好， 留在这里为了以后再回来读。

America Uncoupled: Wall Street and Main Street at a Fork in the Road
October 28, 2009

  Douglas J. O'Bryon

Source:   Seeking Alfa

America has finally come to a fork in the road – at the intersection of Wall Street and Main Street – and that fork is being clutched in the quivering hand of the American Consumer. After walking in lockstep through thick and thin, it appears that this fiscal and fraternal pairing are preparing to part ways. Or are they?

If you recall at the outset of the 2007 downturn, scores of articles were published and proclamations were made regarding the “global uncoupling” of the BRIC countries (Brazil, Russia, India, China), asserting that the robust organic growth in these nations would buffer them from the deleterious effects of any economic contagion coming from the U.S. Two years later, the theory of global uncoupling has proven wrong, as the weight of America’s domestic tailspin has depressed global economies, causing them to also drop like - well - bricks.

We’re now faced with a similar question – but this time within our own borders - a question which asks whether Wall Street and Main Street are becoming uncoupled; whether the fortunes of the financial ruling class can prosper while the middle and working classes continue to suffer.

There’s No “Fun” in Fundamentals

While the stock market rallied to 2009 highs in September - with some indices soaring more than 50% above their March lows - the mood from the rest of the country is nowhere near “soaring” as the body count continues to mount from the carnage of our economic train wreck.

According to the Labor Department, the U.S. unemployment rate was at a 26-Year High of 9.8% in September 2009. Since the recession began in December 2007, over 7,600,000 jobs have been lost.

There are currently over 15,100,000 Americans unemployed, and according to the Plain Dealer on 9/23/09, roughly 5,000,000 have been unemployed over 6 months - the highest number since data was first collected in 1948 – plus there are currently six unemployed people for every single available job.

While normal 26-week unemployment compensation programs have been extended to 79 weeks in many states, over 1,500,000 people are expected to exhaust their benefits by year’s end, with the first big wave of 540,000 falling out of the program at the end of September, according to the nonprofit National Employment Law Project.

In May 2008, the number of people using food stamps was 27,000,000. In December 2008, the number surpassed 30,000,000 for the first time. According to the U.S. Department of Agriculture, in August 2009 there were 34,000,000 Americans on food stamps and in September there were over 35,000,000, a jump of over 1,000,000 in one month.

As of September 2009, a full 12% of the total U.S. population was on some form of Food Stamp assistance, the highest since records began in 1969.

Household debt peaked at $13.9 trillion in 2008, almost double the figure from 2000. With all of the cutbacks in consumer spending in 2009, debt has been “slashed” all the way down to $13.8 trillion, according to the Federal Reserve.

The collapse of both the housing and stock markets has erased more than $12 trillion in wealth since 2007. Between June 2007 and December 2008, inflation-adjusted personal wealth fell by 22.8% - the most since the Federal Reserve began collecting data almost 60 years ago.

According to CNN Money, there were more than 360,000 foreclosure filings in July 2009, an increase of 7% from June 2009 and an increase of 32% from July 2008, marking the third time in the previous five months that a new record for foreclosure activity had been set.

Moody’s Investor Service reported on 9/23/09 that the U.S. credit card charge-off rate - which was 10.52% of balances in July - rose to a record high of 11.49% in August.

According to Automated Access to Court Electronic Records, from January to August 2009, national bankruptcy filing reached 954,911, up from 703,732 in the same period of 2008, and is expected to exceed 1,450,000 by the end of December. In August 2009 alone, the America Bankruptcy Institute reported 119,874 filings, a 24% increase over August 2008.

Therefore, and not surprisingly, The Conference Board reported that its Consumer Confidence Index fell to 53.1 in September from 54.5 in August (a steep departure from the 57 reading expected by the Briefing.com consensus survey) and the index component that measures consumers’ assessment of the present situation fell from 25.4 to 22.7.

It’s Not Mental, It’s Funda-mental

So-called “experts” in the media continue to talk about the importance of “Consumer Confidence,” suggesting that if only Americans would think happy, optimistic thoughts that everything would be okay. Hello? Did you read that first section? Do you see the pattern? Have you watched the data points and reports coming in from Wall Street? The preponderance of homes sold are discounted (foreclosure, short sales, or homes under $250,000), the preponderance of retail success is limited to discounters (Wal-Mart, Dollar General, Family Dollar), and preponderance of restaurant success is also limited to discounters (McDonald's and the like, and now grocery stores).

The problem is not Consumer Confidence, the problem is Consumer Over-Confidence. Do you know how much confidence you need to muster to take out a 40-year loan on a $600,000 house with no money down, with an interest-only loan – on spec – when you’re earning $45,000? Do you know how much confidence it takes to max out all of your credit cards and home equity loans and student loans and car loans? 

The American Consumer has more confidence than anyone on the planet! Too much confidence is what got us into the Countrywide and country-wide mess we’re in (remember, you can’t spell Consumer or Confidence without the “Con”). In short, instead of consuming, the American consumer is now staying home preparing consommé, not because they want to, but because they have no other choice.

Therein Lies the [MATH] Problem

Because consumer spending traditionally accounts for 70% of all U.S. economic activity [GDP] and because the U.S. represents 25% of the world economy, it becomes mathematically evident that a frightening 17.5% of the world economy is dependent on the American Consumer – a population under virtual house arrest, completely tapped out, down for the count, paralyzed by the fear of job loss, foreclosure, bankruptcy, credit card interest hikes, healthcare premium hikes, college tuition hikes, and the limitations imposed by a weak dollar.

Cracking the Whip

Perhaps the best description of the consumers’ condition – and the continuing confusion from the financial pundits - comes from an obscure Economic Manifesto published 18 months ago entitled, “Banks, Tanks, & Angst – How Long Will America Idle?” which described this phenomenon as follows:

“Today’s analysts continue to simply look at market performance in a one-dimensional, linear way – asserting that since stock prices have been marked down and future earnings discounted, that things should start getting back to normal, and the nation will simply ramp back up from this temporary “speed bump” with a continuation of our long-running bull market."

What they fail to understand is a concept that we all learned as kids called “Cracking the Whip.” “Cracking the Whip” was a game where a line of 10-15 ice skaters would hold hands and slowly start turning in a circle, eventually building up so much momentum that the person farthest from the center would eventually fly off the end of the “whip” and go sailing over the ice – whether they wanted to or not! It’s the same with the economy. Wall Street and the associated banks and financial institutions are at the center, and the consumer is skating way out on the end of the whip, and just like the whip, even small movements from the epicenter can have significant consequences as they ripple through the markets.

What Wall Street doesn’t realize is that - instead of being small - the corrections taking place at their epicenter have been huge, and that the even larger aftershocks are just starting to have an impact on the broader economy. All of the bankruptcies, foreclosures, store closings, and abysmal retail figures are just the start. While Wall Street firms can belly up to the discount window and TARP and effectively “buy more time” to get their financial house in order, consumers don’t have that option, as more and more fall into the GAP between Average Consumer Income and the Average Cost of Life.

The American economy fell off a cliff and took a 2-year tumble. The good news is that we’re nearly done falling. The bad news is that the 5-year climb back UP will take a lot longer than the 2-year drop. While “technically” the recession may be drawing to a close, that does NOT mean that the “Good times are here again.” Rather than wasting time trying to guess the shape of the recovery (U, V, W), perhaps we should be identifying a “new animal” to describe the “new normal” market performance.

How about a "Cat?" It's domestic, sometimes it purrs, sometimes it hisses, sometimes tame, sometimes wild, always unpredictable, with a long tail, retractable claws, limited loyalty, finicky, knows its way around the Street, and unlike a dog, always prefaces its actions by considering, "What's in it for me?" In spite of the media’s demand for directional clarity, it’s not going to be an either/or situation. I believe the next few years will play out as a churning “Un-Bear-Or-Bull” market or, in a word, Catatonic.

You Can’t Spell Economy Without Money

With the Cash for Clunkers program over and the $8,000 housing credit ending in November, the government has nearly exhausted its smoke and mirror options to prop up the economy. Companies are now going to have to show actual revenue growth - not just cost cutting - to sustain stock prices going forward; a prospect which gets dimmer when overlaid with the condition of their primary buyer – the beleaguered American consumer. 

The most disturbing data point to reconcile at this point in the downturn is the reality that getting back to an unemployment rate of 5% will require the creation of over 13,000,000 new jobs, a truly jaw-dropping number considering many of the jobs lost over the past two years are in industries which will never return. When people don’t have jobs, they don’t have enough money to survive - let alone thrive – which means that those products and services predicated on a surplus of discretionary income will continue to struggle going forward. 

In fact, even firms that manufacture vehicles, which fall into that fuzzy “needs/wants” category, will have to reset their expectations to reflect the new normal, meaning that the capacity to produce the 16,900,000 new vehicles sold in 2007 must be reduced to the more sustainable 9,800,000 volume projected for 2009 and beyond (a truly frustrating Catch-22 situation wherein improved quality and longevity of used cars on the road actually cannibalizes the potential for new vehicle sales).

American Uncoupled: Hit or Myth?

Just as the theory of “global uncoupling” has proven false over the past two years, it is inevitable that a similar “domestic uncoupling” phenomenon will also be proven unsustainable, much to the dismay of Wall Street and 401(k)s. In what is being hailed as the worst kept secret in the history of the stock market, the Dow will crash OVER 1500 points before Christmas, having gone TFTF (Too Far Too Fast) in the seven months since the March lows - riding what’s been called a “sugar high” – propelled by performance enhancing stimulus funds to reach lofty heights no longer uncorrelated to the fundamental conditions on the ground.

The “recoupling” process is imminent - the only question is how. Fortunately, the end of Major League Baseball’s regular season provides us with the perfect metaphor. It’s like the entire investing community is at a Tuesday night baseball game, during the last week of the regular season, in the final stretch for the pennant. Even while they are cheering the home team and high-fiving each other, out of the corner of their eyes they are watching. 

Everyone has to get up early the next morning and go to work, and nobody wants to be stuck in the parking lot traffic jam until midnight, so as the innings go on, one fan after another begins looking around, starting to plan their escape. They locate the exit tunnels, make one more pit stop in the bathroom, and then quietly whisper the departure sequence to their kids: “When they get the 3rd out in the bottom of the 7th inning, we’re bolting for home.” But the problem is, it’s a good game, the teams are tied, and while nobody wants to get trapped, nobody wants to miss the excitement either. So they wait, all 50,000 of them, on the edge of their seats, preparing for the perfect moment to leave, when suddenly the opposing team starts a rally…man on first…first and third…bases loaded…and then CRACK, a grand slam home run turns a pitching duel into a blowout. The manager makes a call to the bullpen, but it’s too late. It is then that 50,000 people – in one accord – stampede toward the exits, all desperate to make it out of the parking garage before the streams of cars and fans create gridlock. 

I truly believe this is how the recoupling process will play out and the 2009 stock gains will unravel. Everyone knows – on a gut level – that the market grew Too Far Too Fast this year, and that the deteriorating fundamentals reflecting the deteriorating financial situation of America’s consumers don’t support the inflated stock valuations. Just like a baseball rally, it won’t be a single news story or earnings report, but rather a rapid succession of bad markers – a single, a double, a walk, and then one big blow and suddenly – like the Fall of 2007 – investors will remember what it was like trying to “catch a falling knife” and will stampede toward the exits with what remains of their 2009 gains. Goldman and others, with their millisecond-beating, high-frequency trading technologies, will be able to escape through their proprietary exit, while the masses will once again get trampled – the unwitting victims, the unprivileged ballast, of yet another massive transfer of wealth. 

Nightmare on Wall Street

As surely as our brisk autumn winds foreshadow the coming frost and chill of winter, so the imbalances in the delicate equilibrium of our economy foretell another period of financial reckoning, as the forces of Wall Street and Wal-Mart, and the futures of Manhattan and Main Street, are reconciled and the fortunes of both recoupled. Perhaps the great wordsmith Yogi Berra summed it up best with his advice, “When you come to a fork in the road…Take it.” But you’d better act fast, before the market gets spooked and you’re tricked out of your treats. 

Douglas O’Bryon, Soundbite Laureate