November 24, 2009
If The Economy Is Down, Why Is The Stock Market Surging?
Many of us in the world of finance are staring at the financial pages day after day wondering how is it possible that unemployment is off the chart, yet the stock market is surging. We all understand that unemployment is a lagging indicator and that the economy absolutely cleans up and repairs itself long before hiring starts to take place, but many of us financial people are wondering "is there really a corporate reinvigoration underway?"
The real question should be: "what's behind the stock market surge?"
In a meeting that I moderate with 50 or 60 of the top financial minds in Los Angeles, we discussed this very topic just last week. Someone in the room put forth a very significant observation that may well describe this phenomenon.
United States corporations have outsourced a tremendous amount of their manufacturing capabilities to other parts of the globe. We, therefore, produce very little in the United States anymore and we use, unfortunately, very little labor as a consequence. Additionally, American companies are selling more and more of their goods and services to consumers in other parts of the world. The United States makes up just a tiny fraction of all potential world-wide consumers, and although we're relatively rich, there are plenty of people with plenty of money to buy plenty of products from our corporations — which is helping to keep them in good stead.
So when you add up the fact that American companies are deriving revenue from international locations without helping the United States economy by using its labor, it can partially explain why the stock market is surging.
Translation: American investors are making money, yet common people aren't feeling the benefit at all because so many jobs have been outsourced.
It's funny how it works and it's a sad commentary on an American economy that's worked for a long time. We're just all going to have to figure out how to make our economy work for us in a new and different way.
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Comments on If The Economy Is Down, Why Is The Stock Market Surging? »
Although I agree that outsourcing labor is one factor that has provided a little momemtum in the stock market, I think that the greatest factor involved here is that investor fear has subsided somewhat. The general consensus that the U.S. economy has hit the bottom is bringing back in sidelined investment dollars. Nobody wants to miss the ride back up. Unfortunately I believe that many already have. I don't see significant gains ahead in the stock market for 2010 beyond what has already been recouped in 2009. I am much more bullish long term on apartment real estate. As a fellow real estate syndicator, I like having the control and ability to create investment gains as opposed to leaving it to chance in the stock market. —–Jeremy Gustavel, Plus One Properties.