Are there two Americas, and are they drifting further apart?

John Edwards, Hillary Clinton, and Barack Obama were saying that there were two Americas back in 2008. Of course, for them, the record high stock market (before the crash) wasn’t a positive proxy for the nation; it was only for the rich. Their comments were an indictment against President Bush and the notion that he favored the rich. Moreover, it was a call for authority to tweak or even dismantle capitalism.

Fast-forward six years into policies and the rhetoric designed to harm or browbeat the rich, and it’s clear the strategy backfired. The simple fact of the matter is that it will always backfire, because it always has and we are left with these truths.

A) Obama policies have crushed the spirits of the middle and lower classes.

B) Rich people spend money that goes into society that create jobs; and not hoarding money, even if it is their prerogative

Tiffany & Co. (TIF) is a big winner this week,  coupled with the recent earnings beat at Williams-Sonoma (WSM), which had recent strong sales with items such as the $2,000 espresso machine that point to the rich loving life.

 In the meantime, Wal-Mart and dollar stores have struggled with growing sales that point to the middle and lower income classes that still struggles.

Feeling Better?

On the surface, it appears the nation is generally more confident with the most recent reading, rebounding, and beating consensus.  While the overall trend is lower from the January peak and the expectations are worrisome, the headline has held above the history average of 93.0 for five months.

However, the bulk of improvement in confidence comes from those who are earning $50,000 or more, which has surged for those who are earnings $35,000 or less.  This is a serious problem.  I don’t want people to go into debt, but I worry that the same mentality of angst and loathing that controls spending will impact investing too.

Europe, Here We Come

On Wednesday, lawmakers in Nebraska overrode the veto of its governor to become the first conservative state in forty years to repeal the death penalty.  The vote of 30 to 19 saw 17 Republicans crossover in this landmark decision.  This is huge and has national ramifications.

Americans seem more willing to be more like Europe than ever.   It’s been underscored by a recent Gallup poll that show surging moral acceptability on things such as  gay marriage, having children out of wedlock, and doctor-assisted suicides.

By the same token, the support is declining for the death penalty and medical testing on animals.  I know that some of you hate political talk, but to be honest, I don’t care what people do in their own bedroom.  I’ll stay out; just don’t take my wallet.   However, if we think Europe is the answer socially, will we embrace their economic policies?

Today’s Session: GDP Review

Gross Domestic Product (GDP) was revised lower as anticipated, although not as much as many predicted. The original 0.2% gain is now -0.7%. Once again, we begin a new year in economic decline and once again the experts say don’t worry, its temporary, or as Janet Yellen likes to say, “transitory.” If this is getting frustrating, it should; this is the third contraction during this recovery. Since 1981, no recovery saw even one quarter of contraction.

Areas of weakness include exports (strong dollar), business investment and corporate profits in non-financial businesses.

1Q15 GDP Weakness
Exports	-7.6%
Business Investment	-2.8%
Corporate Profits	-$100.0 billion

On the other hand, while not enough to keep GDP in the plus column, there were strengths in imports (strong dollar), residential fixed investments (otherwise known as housing) and inventory.

1Q15 GDP Strengths
Imports	+5.6%
Housing	+5.0%
Inventory	+$95.0 billion

The worst recovery in history lumbers continues.

If the experts are correct and all that inventory build proves to be smart, we could get a nice bounce in the second half of the year, but if not, what happens to the stock market? There are no more tricks at the Fed, although today’s news makes the notion rate hikes are imminently laughable. What’s not funny is the bind horrendous fiscal policies have created.

A Gordian knot of sorts that becomes harder to cut.

The paradoxical reaction to falling gasoline this year makes one wonder what it would take for consumers to step up to the plate.  Savings were edging higher but surged in the first quarter to 5.5% from 4.7% in 4Q14. The last two years has seen savings at 4.9% from 7.2% in 2012.  Something is clearly spooking consumers. The big bet on consumers coming to life will need more than warmer weather.

Comments

Charles, I am surprised by your comment at the end about morality. You have consistently shown that you have wisdom to perceive the intrinsic inseparability of a society's morality and its economics. When morality fails, it consistently hits everyone's pocketbooks. But, your comment about not caring what people do in the bedroom denies this truth. The push to expunge society of all true morality is spearheaded by a conspiracy of lies and denied truth. Homosexuality is not just what happens between two people in a bedroom, it is deeply tied to huge medical costs. The economic reality regarding medical costs born by society associated with heterosexual promiscuity is better, but still very costly. Of course, those huge costs (born by government programs paid for with taxes} are small compared with the terrible consequences of two generations raised without intact families. To be sure, some kids of broken homes do very well, but the majority and the average both suffer clear and significant consequences which affect both the quality of their lives and the economics of the whole society. Abortion and euthanasia were clearly seen by the Nazis as tools to break down morality and enslave the German people, a tactic followed by Obama to economically enslave the lower and middle classes in America. Use of embryonic stem cells sounds good until you look at the suppressed fact that the experiments using embryonic cells have been without gain while those with adult stem cells have been fruitful. All of these morality issues have clear and profound economic impacts that dip into the wallets of every American just as it has done in Europe (where the average tax is >50%). We can only address these problems if every American will stop honoring the "politically correct" error of refusing to allow discussion of the very real economic impact of these immoral behaviors just because they are classified as moral issues in a society where being moral is the only taboo. Bob G on 5/29/2015 11:49:39 AM

Dont bet on consumers "coming to life" until there is a new and clear direction coming from Washington. For sure there will be some episodic bumps but middling will be the best description for the economy going forward through 2016. The consumer has been burned to often by the current crop of pols to consistently put significant capital at risk. A friend in Financial Services who is of Basque heritage put it this way "we are ing a Basque-o economy, people feel safer fixing things twice rather than risk buying new." Scott Manhart on 5/29/2015 11:57:17 AM

I've been warning about the economic impact of abortion for over 20 years, but the country is in total denial of the impact of 58+ million abortions, never mind the echo effect this will continue to have on future generations. It's as if we had a war with 58 million casualties over the last 45 years. The cumulative net effect on GDP is at least $50 trillion and rising by $2.5 trillion every year. No wonder the Chinese have no problem catching up with us in spite of their own 1-child policy. But the real concern about the future is the violence-prone Muslim world which has a rate of natural increase more than 5 times ours is (and we don't include abortions). It's clearly only a matter of time when they can just walk all over a nearly empty Europe. And we're not that far behind. This is not just a generational issue. It is a civilizational issue. Now that the Irish have gone gay, it's only a matter of time. And to think: the Irish once saved western civilization. Dennis Howard on 5/29/2015 3:05:10 PM

Scott has it right about the politicians. I just got caught by another lie from either the Congress or the IRS. Many years ago, I opened a 529 account to help pay for my last son's college. Although the return on the account was lousy, it was guaranteed to be tax exempt. EXCEPT, this year the 1099 reported the portion of the withdrawal that was gain in the account, AND I HAD TO PAY TAX ON IT. So much for the word of the US government about tax free gains in education accounts. Bob G on 5/29/2015 5:42:44 PM

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