Since the stock market bottomed in March of this year, it has been firing on all cylinders -- except for those in the auto industry who manufacture the most cylinders of course. This year has not been kind to them.
For months, many have been surprised at the rapid rise, given the level of unemployment. During this same period, Wall Streeters have been dancing up and down, looking forward to more bonuses.
As the number of unemployed has climbed and the period of same has lengthened, many have wondered how business could be improving during a time when the consumer (those still left) has transformed from spender to saver.
The answer(s) may be all too simple; many of our largest companies do more business outside the United States than in it. Companies like Johnson & Johnson (NYSE: JNJ), Proctor & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), International Business Machines (NYSE: IBM), and Exxon Mobil (NYSE: XOM) already do 50% to 70% of their business outside the U.S., and that business is growing faster.
The more international business these companies do, the less U.S. labor and even consumers matter. A portion of the job losses are not related to the financial crises but due to structural changes. Three countries -- China, India, and Indonesia -- have approximately 10 times the population of the United States, and those consumer markets are where the future lies.
In all honesty, how many more bandages or rolls of toilet paper can we consume? If Johnson & Johnson or Procter & Gamble wants to grow, they can take a marginal share of business away from a competitor or create a new product here, increasing sales a few percent, while abroad they can sell their whole product line and potentially double their sales, while only investing a small incremental amount on research and development.
Add to this the fact that all businesses do far better within an environment of low interest rates, flat wages, reduced energy costs, and a laser focus on the bottom line, and the markets' climb seems much less amazing.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of JNJ.
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Reader Comments (Page 1 of 1)
10-18-2009 @ 2:55PM
Jason said...
So what you're saying is we are absolutely screwed, right?
10-18-2009 @ 8:23PM
william lindblad said...
Yes, I agree with you - partially.
Wall St. is running on earnings and those earnings are from two sources. One is export activity and the other is cost cutting. The above statement is for manufacturing and does not apply to the finance and banking arena as that whole sector is afloat due to government intervention.
The economy is weak and government stim. is obviously going to be around for some time to come. Exports? Have you read the highlights of the energy bill? I really do not think that there will be a dramatic turn around in employment for some time - perhaps years. I do think that Wall St. is not going to be pleased with the 1st qtr of next year. The U.K is running on export mode also, along with many other countries and the full effects of this recession have not reached terminal point as yet. The countries that we are exporting too also have the consumer as a major player in their economies. It is all one huge economic cycle and it does take time for things to come full circle.
Not to be misconstrued, I am not expecting any major disaster (economic), just that things are going to remain slow - all over.
10-18-2009 @ 9:21PM
Sheldon L said...
Jason,
We're not "absolutely screwed", we are partially screwed.
Like any other time, some will learn to deal with the new reality and some will not. Some will prosper and some will not.
We are still the worlds best customer and much more; that does matter.
Keep in mind that Great Britain passed the economic baton and yet remained one of the worlds robust economies.
We need to keep saving, investing, inventing, and educating ourselves.
10-18-2009 @ 10:32PM
Peter Van Schaik said...
For years US consumers have wanted the best of both worlds: We%uFFFDve demanded the lowest prices and highest wages possible. Sooner or later the two forces were bound to collide with unpleasant repercussions. Productivity gains can postpone the day of reckoning but at some point it is easier to lower costs rather than increase productivity. And, short of gains in productivity, all cost reductions ultimately come out of someone%uFFFDs paycheck, either wages or profits.
We%uFFFDre not necessarily screwed but if we want to put our neighbors back to work, we have to buy the goods and services our neighbors produce rather than the less expensive products produced with cheaper labor offshore. Either we must pay a bit more for what we consume or we must be willing to work for less while prices remain the same. In either case we lower our general standard of living.
Of course the cheaper dollar allows us to export more which does alleviate the problem to a degree. I just find it hard to believe we can switch to an export economy fast enough to solve the employment and debt problems in the short term.