Take a Free Trial
Try Charles' premium stock selection services free for 7 days.
Check it out in real time!
You will get actionable advice, trading ideas and email alerts.
10/28/2011 9:38 AM
Troublemakers and the (real) Death of the American Dream
By Charles Payne, CEO & Principal Analyst
If you can get the proper definition of trouble, then we can find out who the real troublemakers are. -Al Sharpton
Flipping television channels this week, the story of income inequality was a common theme but taken and twisted in such a devious way as to incite anger rather than enthusiasm. I find it interesting in the land of opportunity where we all like to talk about the sky being the limit there is so much anger at the top 1% percentile for reaching after tax household income that's risen 275% higher from 1979 to 2007. The report from the Congressional Budget Office was said to justify the anger at Occupy Wall Street and proves we should punish the rich.
The story was told as if the same people in the top 1% income category in 1979 were its sole members in 2007. But that's not the way America works. In 1979 I was in the lowest quintile, and now I'm in the top 1 percent. When measuring my income, and judging America, the change in my income should be calculated in the lowest quintile to reflect where I started and my upward mobility. This is the disingenuous part of how this report was communicated. In this case, the trouble is the idea that a small group of people in 1979 established a way to increase their income at the expense of the rest of the nation.
We obviously know who the troublemakers are, but they are more than opponents of capitalism, they are destroyers of dreams. If we tell the story of this CBO report the right way, it's a story of increased fortune for anyone to go and grab. In 1979 Nolan Ryan signed a $1.17 million a year deal with the Houston Astros - it was a record breaking deal and first above one million annually. In 2007, Jason Giambi raked in $23.4 million as the highest paid player in baseball, an increase of 1900% from 1979.
I guarantee you that Alex Rodriquez, currently the highest paid guy in baseball, wasn't born in the top 1%. So, let's assume for argument sake he was born in the second quintile. At age 18, he would have been placed at $23,939 a year and this year at $32.0 million. His change in income would be 139,100% and that number should be added to the second quintile so we can get a true picture of what opportunity is in America. Do me a favor and figure out the percentage change using your current income against your quintile bracket back in 1979. I want a sense of what America is really about and not the scare tactics that the rich are hoarding. Email me at Charles.firstname.lastname@example.org.
Of course there is no outrage at baseball players, no Occupy Yankee Stadium, because they are way too cool. This is so dangerous as to be irresponsible. When the CBO talks about "after-tax income received by 20 percent of the population with the highest income" it makes it seem like these are people that don't work or didn't work for the money they invested. There are other elements that skew the report, such as transfer payments, which have shifted to older people in higher income brackets as a consequence of entitlements. But, the narrative concentrates on this idea that there is a fixed amount of wealth in the United States, and greedy people have controlled it for decades.
This kind of stuff has been tried in the past in many different cultures and dare I say civilizations, and it has led to the ugliest periods in world history. The idea of income inequality is ridiculous if the goal is to help poorer people become wealthier. Even those nations that pride themselves on income equality are seeing increases in so-called inequality with this report acknowledging its occurrence in two-thirds of all countries even Finland, Norway and Sweden. This means people with good paying jobs are demanding higher salaries. This is good news not something to be embarrassed about.
The report points out that numerous researchers have concluded that, on balance, the technological changes of the past several decades- perhaps the entire century- increased employer's demand for workers with higher skills and more education. That increase, along with a smaller increase in the supply of workers with higher skills and more education, generated substantial gains in the relative wages of more-educated workers.
In other words, the days of a person on an assembly line making as much as someone working at a computer chip lab are over with the former able to demand less for services while the latter demands more. It's not unlike how LeBron James made his decision last year to skip to Miami and form the dream basketball team. So what exactly should be done about this? Should we make people that have these great skills work for less than market wages to appease those with more common skills for not having the brains or leaping ability?
What do these trouble makers want other than people that make less to feel like crap and people that make more to feel like crap and everyone to give up on the idea of making it in America? I hope income for the top 1% goes up another 275% over the next thirty years and maybe my son can get a piece of that action. The goal is to make sure all of our children get a piece of the action higher on the income scale. Most people don't want to take what others have earned- that's called stealing.
If the troublemakers could make their dream come true what would it mean for you?
If Alex Rodriquez takes a pay cut from $32.0 million a year to $7.0 million a year would you pay your babysitter more money? If last year's high flying money manager who scored $1.0 billion craps out this year and loses millions would you go to work tomorrow and demand a raise? Would there be more money in the pot? World the world be a better place? Would the American dream be more alive?
We all would like to see the lower quintiles pay increase, but it's not coming at the expense of higher paying jobs. The idea to punish someone from climbing the ladder of success in the nation that prides itself , or at least used to pride itself on such achievements is dumb and dangerous and would mean serious trouble for everyone.
While I think we should celebrate the fact that the foundation of the American economy is still standing after a three year assault that has certainly left a lot of damage, this market rally also owes much to growth in the rest of the world- especially in China. That news out of Europe probably couldn't have happened without an implicit offer from China to play a role, and unlike money that will come from the American taxpayers, there will be tough terms attached. According to the FT this morning, China might contribute $100 billion (a drop in China's bucket of $3.2 trillion in foreign exchange reserves) with conditions including Europe shutting up about currency manipulation.
Last night, Bidu.com posted a very strong earnings report that's lifting most Chinese stocks and maybe dispelling the notion the whole thing is a house of cards. I think most things are rigged in China, as it's rife with corruption, but it's a juggernaut on a mission, and to dismiss it as a rival nation or potential investor is a mistake.
The stock of the day could be Arkansas Best (ABFS) which posted earnings of $0.46, beating the street by $0.16 on better efficiency (operating ratio decreased to 96.1 from 100.1) and higher per day revenue. Unfortunately, tonnage per day slipped by 2% year over year and management notes that trend continued into early October. Still this is a great report for a trucker, which has been around since 1923, but along with the industry, struggled of late.
Economic data out this morning paints a conflicting picture of the economy. Consumer spending is running really hot, well ahead of income and I continue to wonder if that's coming too much from savings. If so, then is it sustainable? We will have more details on consumer income, spending and inflation readings in the afternoon update.
Futures look sloppy, continuing the slide we saw into yesterday's close. This market has made a monster move since that October 4th intraday reversal that saw the Dow open at 10,650, then freefall to 10,363, and then to find a way in the last hour of trading to see the index close at 10,808. Let's see how the market reacts to this morning's news and that feeling of the morning after.
Add a Comment!