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In Our Zero Sum Economy, Are You Winning or Losing?


Right now, the winners are US retail, the credit card banks, and the automakers; the losers are the banks and the holders/guarantors of US mortgage debt.


Normally I'd wait until the end of December to share my "big theme" for the New Year. This year, however, I'm not sure my big theme can wait that long.

On Friday, I shared on the Buzz & Banter this quote from Jim Cramer from his Thursday night Mad Money show:

Banks can't get their money back on their mortgages? -- Terrific -- [It's a] big transference of wealth to struggling homeowners who can then spend their money at Target (TGT) or "Chief Fat Pants" purveyor Kohl's (KSS). No wonder the RTH, that's the retail ETF, has been going up while the bank stocks have been going down. It's a total seizure and redistribution of capital from the banks to the retail proletariat. Just like my Great Great Uncle Vlad [Cramer holds up a portrait of Lenin] would have ordered.

Instead of paying Wells Fargo (WFC), you're spending at TJX (TJX) and Ross Stores (ROST) and "dressing for more" as Wells gets less. Heck, maybe you're buying a car with money that was meant for JPMorgan (JPM). Go buy some Ford (F). Go buy some auto-parts makers too. How bout the railroads? To ship those goods -- like CSX (CSX) or Union Pacific (UNP) or underground railroader Berkshire Hathaway (BRK.A) now that it's bought Burlington Northern (BNI)

Unemployment still high? What does that mean? It means more entitlement benefits coming to these households. It means checks. It means food stamps. Go buy Family Dollar (FDO) and Dollar General (DG), they're working.

And then yesterday morning, I saw this from BlackRock (BLK) vice chairwoman Barbara Novick in her op-ed in the Wall Street Journal:

The primary beneficiaries of HAMP (Home Affordable Modification Program) have been holders of unsecured consumer debt (credit cards, car loans, etc.) that have benefited from borrowers' reduced debt burden, despite the dismal reality that half of all borrowers emerge from HAMP with a total debt-to-income ratio greater than 63.5%, according to the most recent Treasury data.

Like it or not, given the negligible real growth in our economy, we've reached the point where it's truly a zero-sum game. In order for me to win, someone else must lose.

Right now, as Mr. Cramer and Ms. Novick point out, the winners are US retail, the credit card banks, and the automakers. And the losers are the banks and the holders/guarantors of US mortgage debt.

Mr. Cramer thinks that this provides a foundation for a viable investment strategy. Ms. Novick believes it's a "bad idea" "sticking the [mortgage-backed bond] investor with a larger loss and preventing the housing market from fixing itself."

I suppose where you stand depends on where you sit. Or put differently, in our zero-sum economy, are you winning or are you losing?

As I look at the economic landscape, there are winners and losers everywhere.

Savers -- losers; overleveraged borrowers (of all kinds) winners.

Commodity providers -- winners; commodity users losers.

And I could go on. And you probably have an even better list than I have.

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Position in SPY,SH, and JPM.
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