Picking winners and losers is the essence of active investing. The process normally is applied to securities and other financial instruments. But these days, the selectivity also concerns people.
The gap between the rich and poor in America remains a perennial concern, one that draws special attention during presidential election years. In her forecast in December of the 2008 election-year economy, Diane Swonk, chief economist at Mesirow Financial said, “There is the issue of income inequality, which is expected to worsen despite moderate improvements in employment.”
Based on recent history, income inequality probably will worsen this year. But signs are emerging that the fallout from the apparent recession is a more equal-opportunity villain than you might expect. Winners are getting harder to find.
For one thing, employment has slumped broadly this year. The economy lost jobs in January and more jobs in February.
It’s reasonable to expect, for example, that highly-paid workers, especially in the financial-services industry, will feel a share of the pain of the housing bubble bursting.
Top-salaried employees at investment bank Bear Stearns, which this week was rescued from collapse by government intervention, could be looking for work.
Reports circulated Thursday that the nation’s biggest banking firm, Citigroup, plans to cut 2,000 jobs in its securities trading and investment operations, in addition to the 4,200 job cuts disclosed in January.
Many of the jobs being eliminated as a result of lax and abusive mortgage lending are at the upper end of the nation’s household-income scale.
Meanwhile, “income gains are being swallowed by rising prices,” Kristin Lo of Stone & McCarthy Research Associates predicted in her preview of next week’s scheduled report on personal income for February.
Inflation has grown worse since then and should continue to eat into whatever income gains workers enjoy. Some of the greatest inflation in prices has occurred in high-end consumer goods, especially precious metals and other luxuries.
A widening income gap in America suggests, as Swonk predicted, “gains at the extreme” in the economy. A widening income gap suggests improved sales by high-end and low-end merchants, at the expense of those in the middle. From an investment standpoint, that divide has not occurred.
Wal-Mart Stores, a proxy for low-end retailing, is the biggest percentage winner in the Dow Jones industrial average this year, with a 12 percent gain.
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Jewelry merchant Tiffany, a publicly traded proxy for high-end retailing, is not keeping up with Wal-Mart. Its shares are off 16 percent, far worse than the market as a whole.
Tiffany is scheduled to post its latest quarterly results Monday. Analysts expect a nearly 1 percent increase in earnings per share from the year-earlier period. But higher prices for gold and platinum, as well as job insecurity on Wall Street, could depress results.
Based on numerous reports, wealthy Americans most aggressively plunged into credit card debt tied to their bets that home prices would rise perpetually. The demand for bling among the well-off likely will decline this year.
Walgreen, the giant drug and general merchandise retailer with a broader customer base, also is scheduled to report Monday. Its numbers will be scanned for evidence of consumer resistance to higher drug prices. Walgreens is also the department store for many low-income consumers.
Earlier this month, Deerfield-based Walgreens reported a modest 4 percent increase in February sales over February 2007, not counting the leap year day this year.
Analysts are forecasting earnings per share of 67 cents in Walgreens’ last quarter, up from 65 cents a year earlier.
This year’s erosion of income and spending, especially on an inflation-adjusted basis, has not discriminated between rich and poor in many American households.
Populist political appeals to hard-pressed workers at the low end of the economic scale will remain key planks in many candidate platforms this year. But the money worries of the rich could have a big impact on the economy, an unpleasant trickle-down effect that will be harder for politicians to talk about.
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