The US Stock Market and the American Strategy
Two months ago, for the first time in this country's history, a news story came out reporting that we are spending more than we are earning.
This article is not going to be about the pros and cons of that spending habit, but rather about who is doing all of this spending and the importance of distinguishing groups within the spenders.
We are going to look at two groups of people: the top 20% of earners in the U.
S.
and the bottom 50% of earners.
I'm using these two groups of people because their spending patterns are quite different.
THE BOTTOM 50% First, let's see what the bottom 50% of earners are doing by taking a look at Wal-Mart Stores, Inc.
(WMT) as an example.
I've chosen Wal-Mart because this one store, more than any other store in America, represents where the bottom half of this country spends its money.
I have only been in one Wal-Mart store in my life, and I must say that I was quite impressed with how people use this store; they use it as their "buy-everything" store.
People were also using it as their local meeting place and even a hangout place.
I didn't expect this, and found it interesting.
Since about mid-2000, the stock price of Wal-Mart has been moving sideways on stock price charts.
If a larger part of the bottom 50% of the country were buying, it would show up in larger same-store sales figures and higher revenue, which would translate to a higher stock price.
And even with the legal issues Wal-Mart has had with unions, we'd still see an up-shift or an uptrend as a response to more spending by the bottom half.
Perhaps the increase in spending by the U.
S.
consumer is not being led by the bottom half of earners in this country.
They do their part, but this may not be the engine that is driving the overall picture of spending in the U.
S.
THE TOP 20% Let us now turn to what the top 20% of earners are doing to keep the U.
S.
at the top of the big spenders list of the world.
Let's look at Nordstrom, Inc.
(JWN).
Nordstrom, as many of you may know, operates high-end department stores that sell shoes, cosmetics, clothes and accessories.
I'm choosing this company because I think it represents where the top 20% of earners in this country spend.
If the top 20% of earners in this country are spending, it will most likely show up in the price chart of Nordstrom moving up.
Since 2003, there has been a steady rise in Nordstrom stock values.
What the price charts of Nordstrom may be telling us is that the increased spending is coming from the higher income earners in this country.
As this group earns more and gets richer, they are spending more on clothes, shoes, and all those accessories that you or your partner seem to bring home from time to time.
The stock prices of these companies tell an interesting story: First, the rich are indeed spending more than the bottom 50%.
The reason is obvious; the top 20% are earning more, and they are going to spend more.
The divide between the haves and the have-nots seems to be well illustrated here.
Secondly, we are spending more than we earn as a country.
This can only end badly.
As the rich get richer they will spend more (read: they are probably not saving).
What happens to this country when the rich (the top 20%) and the not-rich (the bottom 50%) stop spending? I think we will get the answer in the next couple of years, and it will be very ugly.
Lastly, when we earn more, we spend more, keeping us in the circle of the working rich.
If you are among the working rich, meaning that you earn well but are no closer to the option of not working, then you, too, are stuck.
Saving...
and growing that savings is the only way people can get themselves out of the rat race and really feel in control of their time.
Here's to letting it be okay to live within your means and actually save.
(Originally written March 2007)
This article is not going to be about the pros and cons of that spending habit, but rather about who is doing all of this spending and the importance of distinguishing groups within the spenders.
We are going to look at two groups of people: the top 20% of earners in the U.
S.
and the bottom 50% of earners.
I'm using these two groups of people because their spending patterns are quite different.
THE BOTTOM 50% First, let's see what the bottom 50% of earners are doing by taking a look at Wal-Mart Stores, Inc.
(WMT) as an example.
I've chosen Wal-Mart because this one store, more than any other store in America, represents where the bottom half of this country spends its money.
I have only been in one Wal-Mart store in my life, and I must say that I was quite impressed with how people use this store; they use it as their "buy-everything" store.
People were also using it as their local meeting place and even a hangout place.
I didn't expect this, and found it interesting.
Since about mid-2000, the stock price of Wal-Mart has been moving sideways on stock price charts.
If a larger part of the bottom 50% of the country were buying, it would show up in larger same-store sales figures and higher revenue, which would translate to a higher stock price.
And even with the legal issues Wal-Mart has had with unions, we'd still see an up-shift or an uptrend as a response to more spending by the bottom half.
Perhaps the increase in spending by the U.
S.
consumer is not being led by the bottom half of earners in this country.
They do their part, but this may not be the engine that is driving the overall picture of spending in the U.
S.
THE TOP 20% Let us now turn to what the top 20% of earners are doing to keep the U.
S.
at the top of the big spenders list of the world.
Let's look at Nordstrom, Inc.
(JWN).
Nordstrom, as many of you may know, operates high-end department stores that sell shoes, cosmetics, clothes and accessories.
I'm choosing this company because I think it represents where the top 20% of earners in this country spend.
If the top 20% of earners in this country are spending, it will most likely show up in the price chart of Nordstrom moving up.
Since 2003, there has been a steady rise in Nordstrom stock values.
What the price charts of Nordstrom may be telling us is that the increased spending is coming from the higher income earners in this country.
As this group earns more and gets richer, they are spending more on clothes, shoes, and all those accessories that you or your partner seem to bring home from time to time.
The stock prices of these companies tell an interesting story: First, the rich are indeed spending more than the bottom 50%.
The reason is obvious; the top 20% are earning more, and they are going to spend more.
The divide between the haves and the have-nots seems to be well illustrated here.
Secondly, we are spending more than we earn as a country.
This can only end badly.
As the rich get richer they will spend more (read: they are probably not saving).
What happens to this country when the rich (the top 20%) and the not-rich (the bottom 50%) stop spending? I think we will get the answer in the next couple of years, and it will be very ugly.
Lastly, when we earn more, we spend more, keeping us in the circle of the working rich.
If you are among the working rich, meaning that you earn well but are no closer to the option of not working, then you, too, are stuck.
Saving...
and growing that savings is the only way people can get themselves out of the rat race and really feel in control of their time.
Here's to letting it be okay to live within your means and actually save.
(Originally written March 2007)
