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I thought this was an interesting article.
http://www.nydailynews.com/money/2007/07/23/2007-07-23_stocks_leap_to_records_but_consumers_pay.html
Stocks leap to records, but consumers pay up
BY PETER SIRIS
GUERRILLA INVESTOR
Monday, July 23rd 2007, 4:00 AM
The Cannonball Express to the Hamptons was packed last Thursday with Wall Street types toasting the stock market.
After the Dow 14,000 parties, everyone on that Long Island Rail Road train must have been hung over because stocks got trashed on Friday. Nonetheless, big investors have reason to celebrate.
There were fewer smiles on the 7 train. People who focus their money concerns on buying food for their family or gas for their car aren't feeling as flush.
Lindsay Lohan is smiling, at least in her Got Milk ad. She can afford to pay higher prices for milk. But at the supermarket checkout, I see fewer smiles. I don't care what the government tells us, but milk, beef and other staples are much more expensive. And drivers are paying up to $3.50 a gallon for gas.
Why does the market soar while average Americans feel pinched?
Partly because the rest of the world is doing fine. International companies like Boeing and Caterpillar are selling planes and tractors to China, India and other emerging economies, boosting profits. Many of these are Dow stocks, making that average the big winner.
The dollar is weakening, making our exports cheaper, and helping tech and industrial companies. It also makes imports more expensive, hurting consumers. If you send money to a relative in another country, you know the greenback is no longer king of the world.
Private buyout firms are on a spree, pushing stock prices up. Because the economy isn't strong, interest rates are low, so deals are financed with money borrowed cheaply.
This sounds like an easy game, but someone has to finance the debt. Banks and hedge funds have been happy to do it, landing higher fees from financing this junk. This is the same game they played with home mortgages. They start by lending 70% on great real estate. As pressure for profits increases, they lend 110% on a dive in a toxic waste zone.
Lenders are starting to say no to the craziest deals and may say no to some of the buyouts pushing the market up. To use a baseball analogy, we're in the eighth inning of a rally and our top save specialist is worn out from the mortgage mess.
What's next?
The U.S. consumer is tapped out. I expect weak back-to-school buying. Higher commodity prices and weaker demand will squeeze restaurant stocks. I wouldn't own them. The housing market won't rebound soon. Companies that sell furniture or build swimming pools aren't going to thrive.
If more mortgage problems arise or earlier deals implode, financial firms could be hurt.
Health care stocks look good but investors will obsess about what happens if a Democrat gets elected President in 2008.
This leaves us with a market of industrials, techs that export and cheap stocks that can be taken over. For a prolonged rally, that isn't a lot. My guess is the Cannonball Express will soon see more drinking and less celebrating.
Peter Siris is a money manager at Guerrilla Capital in Manhattan.Lindsay Lohan is smiling, at least in her Got Milk ad. She can afford to pay higher prices.
http://www.nydailynews.com/money/2007/07/23/2007-07-23_stocks_leap_to_records_but_consumers_pay.html
Stocks leap to records, but consumers pay up
BY PETER SIRIS
GUERRILLA INVESTOR
Monday, July 23rd 2007, 4:00 AM
The Cannonball Express to the Hamptons was packed last Thursday with Wall Street types toasting the stock market.
After the Dow 14,000 parties, everyone on that Long Island Rail Road train must have been hung over because stocks got trashed on Friday. Nonetheless, big investors have reason to celebrate.
There were fewer smiles on the 7 train. People who focus their money concerns on buying food for their family or gas for their car aren't feeling as flush.
Lindsay Lohan is smiling, at least in her Got Milk ad. She can afford to pay higher prices for milk. But at the supermarket checkout, I see fewer smiles. I don't care what the government tells us, but milk, beef and other staples are much more expensive. And drivers are paying up to $3.50 a gallon for gas.
Why does the market soar while average Americans feel pinched?
Partly because the rest of the world is doing fine. International companies like Boeing and Caterpillar are selling planes and tractors to China, India and other emerging economies, boosting profits. Many of these are Dow stocks, making that average the big winner.
The dollar is weakening, making our exports cheaper, and helping tech and industrial companies. It also makes imports more expensive, hurting consumers. If you send money to a relative in another country, you know the greenback is no longer king of the world.
Private buyout firms are on a spree, pushing stock prices up. Because the economy isn't strong, interest rates are low, so deals are financed with money borrowed cheaply.
This sounds like an easy game, but someone has to finance the debt. Banks and hedge funds have been happy to do it, landing higher fees from financing this junk. This is the same game they played with home mortgages. They start by lending 70% on great real estate. As pressure for profits increases, they lend 110% on a dive in a toxic waste zone.
Lenders are starting to say no to the craziest deals and may say no to some of the buyouts pushing the market up. To use a baseball analogy, we're in the eighth inning of a rally and our top save specialist is worn out from the mortgage mess.
What's next?
The U.S. consumer is tapped out. I expect weak back-to-school buying. Higher commodity prices and weaker demand will squeeze restaurant stocks. I wouldn't own them. The housing market won't rebound soon. Companies that sell furniture or build swimming pools aren't going to thrive.
If more mortgage problems arise or earlier deals implode, financial firms could be hurt.
Health care stocks look good but investors will obsess about what happens if a Democrat gets elected President in 2008.
This leaves us with a market of industrials, techs that export and cheap stocks that can be taken over. For a prolonged rally, that isn't a lot. My guess is the Cannonball Express will soon see more drinking and less celebrating.
Peter Siris is a money manager at Guerrilla Capital in Manhattan.Lindsay Lohan is smiling, at least in her Got Milk ad. She can afford to pay higher prices.
