[Marxism] Stock market mysteries

Louis Proyect lnp3 at panix.com
Sat Nov 14 06:38:25 MST 2009

Stock Market Mysteries
If the economy's stagnant, why are stocks up? The answer is disturbing.

By Daniel Gross | Newsweek Web Exclusive

Nov 3, 2009 | Updated: 2:09 p.m. ET Nov 3, 2009

Here's a puzzle: The stock markets are doing very well, yet the 
performance of the underlying economy doesn't seem to justify optimism. 
The buoyant S&P 500 has risen 53 percent since the March bottom. And 
while the economy expanded at a 3.5 percent rate in the third quarter, 
unemployment is high, incomes are stagnant, and consumers are shaky. 
(Click here to follow Daniel Gross)

It's possible that the stock market is just getting it wrong again. 
After all, the markets, which are supposed to process investors' 
attitudes about the future, hit record highs in October 2007, just as 
the U.S. economy was about to pitch into recession. But it could be that 
the notion the stock market is an accurate gauge of the domestic 
economy's temperature is outdated.

The Dow, the S&P 500, and the NASDAQ are primarily indices of large 
U.S.-based companies, not main street businesses: more Davos than 
Chamber of Commerce. These increasingly cosmopolitan firms have been 
busy globalizing and expanding their operations overseas. In 2006, 
according to Standard & Poor's, 238 members of the S&P 500 broke out 
revenues between U.S. and non-U.S. sales. These companies notched about 
43.6 percent of sales outside the United States. For large companies 
that had already saturated the U.S. market, the home market was 
something of an afterthought. In the second quarter of 2007, 66 percent 
of Coca-Cola's beverage business came from outside North America.

And thanks to the long recession, demand for products and services of 
all types in the United States has shrunk even since 2006. Yes, the 
global economy in 2008 experienced its first year of shrinkage since 
World War II. But growth has resumed, and in some places—Peru, China, 
India—it never stopped. As a result, the globe's economic geography has 
continued to change, with the United States accounting for a smaller 
chunk of global output and demand each year. For much of the past two 
years, virtually all growth in economic activity has taken place outside 
America's borders. As a result, U.S.-based companies are becoming even 
more reliant on non-U.S. customers and operations for sales. S&P last 
summer updated its numbers. In 2008, the figure rose to 47.9 percent 
(with 253 of the 500 companies reporting), up from 43.6 percent in 2006. 
Put another way, in two years, big companies' proportion of sales coming 
from outside the United States rose 9.8 percent. It's likely the 2009 
figure will be something very close to 50 percent.

If companies participated in foreign markets primarily by exporting 
U.S.-made goods, this shift would be good news for the U.S. economy and 
workers. But that's not how it works. In fact, in the months after the 
global credit meltdown, U.S. exports plummeted. They bottomed in April, 
at $120.6 billion, and though they have been rising, the August 2009 
total is still 20 percent below the August 2008 total. Globalization is 
changing the way we do business. It's not a matter of U.S. companies 
exporting goods—burgers, soda, cars, software—made in the United States 
to Beijing but rather, making goods overseas and selling them overseas.

The Financial Times reported that Disney this week is releasing Book of 

"Based on a Russian fairy tale and produced in Russia using local 
talent, the film is the latest step in Disney's broad push into local 
language production," the FT reports. As Disney CEO Robert Iger put it: 
"We would not be able to grow the Disney brand … if we just created 
product in the US and exported it to the rest of the world." If Book of 
Masters succeeds, it will be good for Disney's American shareholders but 
won't do a whole lot of good for its U.S.-based employees. Or consider 
American icon General Motors. GM's sales in China are rocking. In the 
first nine months, the company sold 1.3 million cars in China, including 
more than 181,000 in September. By contrast, GM in the United States in 
the first nine months sold 1.5 million cars in the United States, down 
36.4 percent from the year before. And in September, GM sold just 
156,673 cars in the United States. That growth in China is good for GM's 
shareholders and for some of its executives. But since most of the cars 
sold in China are produced there, with parts produced by suppliers in 
China, rising sales in the Middle Kingdom won't translate into jobs for 
unionized workers in the Middle West.

The rising U.S. stock market and a weak, slow-growing U.S. consumer 
sector aren't really in contradiction. Given the large-scale trends 
transforming the global economy—and the role of large U.S. companies in 
it—it may be possible to have a sustainable rally in American stocks 
without a sustainable rally by American consumers.

Daniel Gross is also the author of Dumb Money: How Our Greatest 
Financial Minds Bankrupted the Nation and Pop!: Why Bubbles Are Great 
For The Economy.

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