A Tale of Two Streets
Oct 21, 2009
Posted by Jody Eisenman | Filed under Uncategorized
“It was the best of times, it was the worst of times”. So begins Charles Dickens nineteenth century classic, “A Tale of Two Cities”. I think about this when we look at the comparison between the investment community (Wall Street) and the working community (Main Street). While the stock and bond markets soar as if we were in the greatest of bull markets (at least since March), the rest of America continues to struggle. Here are a few examples:
1. The Credit Markets: As investors pore money into bonds at an incredible pace, yields are dropping on almost every type of interest bearing paper. On the other hand, the credit card companies and the banks have cut back on credit available. In addition, companies like Master Card and American Express have raised interest rates on outstanding balances to over 20% in some cases. Thus, the people who are in debt and can least afford it, are also paying astronomical prices. Clearly a case of haves and haves not.
2. The Stock Market and the Economy: Generally speaking, the stock market should somehow reflect the economy. Since most stocks, at least those in the S and P 500 are valued at some measure of earnings, then an improving economy should translate into higher stock prices. However, while stock prices have soared over 50% since March, the economy has not really shown viable signs of recovery. The unemployment rate was 8.5% in March when the stock market bottomed. Today, it is 9.8%, yet the S and P 500 has gone from a low of 666 to a current level of 1091.
3. The Real Estate Market: On the one hand, real estate investment trusts have rallied dramatically. On the other hand, foreclosures are soaring, and there is a looming problem in the commercial markets of upcoming balloon payments that will need to be refinanced. In addition, getting a mortgage today is much tougher then it was before the recession.
So, although investors have profited handsomely through this rally, I do not believe this has really “trickled down” to the average working Joe. Sooner or later, this will converge. Either the economy will recover, or the stock and bond markets will come back to Earth. Lets hope it’s the former.
