[Marxism] Stock market mysteries
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.
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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economy's temperature is outdated.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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