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A Bottoms-Up Look at the Global Economy


Society is simply a sum of its parts.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Lighten up while you still can, don't even try to understand. Just find a place to make your stand and take it easy."
-- The Eagles

There is a litany of crosscurrents in global markets these days, from the European debt crisis to stateside political wrangling to machine-driven algorithms that push the market around in nanoseconds. That's all well and good as topics for debate, but none of them hit home quite like a dynamic that…hits home.

Following a string of disappointing economic reports - America's manufacturing sector shrank in June for the first time in three years, per the ISM, while the service sector is at a two-year low - the National Federation of Independent Business's Small Business Optimism survey was released this morning, with many sub-index rankings - such as future expectations of business conditions-falling off a cliff.

While some might yawn at yet another opaque economic survey, the severity of the financial downturn is front and center for more and more Americans. Case in point: Scranton, Pennsylvania, where firefighters and police awoke this morning to find their salaries slashed to minimum wage. Mayor Chris Doherty contends that it is the only way for the cash-strapped city to climb its way out of a $16.8 million budget deficit. He may be right, but you know it won't come easy.

Those types of decisions aren't isolated these days; as a small business owner, I will offer that the environment is challenging on a number of levels. We've seen some larger enterprise venders push business to the second half of 2012, which effects budgeting and planning decisions from the bottom up. There are still opportunities in the marketplace but one must be creative in approach and efficient in execution, which is the mark of a true entrepreneur.

I watched an economist from the National Federation of Independent Business on television this morning assure America that "barring a shock, we won't dip back into recession." While I understand that he's technically correct, I would argue that it's a matter of semantics, that most of America never truly recovered in the first place, and that data has been masked by the dollar and skewed by the spending habits of a slimming margin of society.

I wrote an article in October 2008 called The Age of Austerity, and offered that "the tension is thick and the mood is darkening." While the liquidity-induced rally in financial assets suspended reality for those in a position to prosper, most of America languished as investors got punished at the top and savers were screwed at the bottom. That vicious cycle is not without ramifications; social mood and risk appetites most certainly matter.

I'm a believer that Human Capital is the Greatest Investment and a phoenix will arise on the other side of this socioeconomic ride. The Millennial generation - kids who don't know the difference between experience and skill-sets, nor do they care - is blessed with a fresh perspective and legs to match; many of them are human doers and while it will take some time, they'll put some pep in what's been a very lethargic social step.

Looking Back as We Move Forward

In 2008, Kevin Depew shared one of the most profound passages to ever grace the pages of Minyanville. And I quote,

A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality.

I've long offered that the chasm between perception and reality is where profitability is found. Looking forward, we can apply that smell-test to two dynamics that are being bandied about in the mainstream media: consumer spending and unemployment.

There are two types of frugality: involuntary thrift (when you can't afford to fuel up your car to take your family to Applebee's for dinner) and voluntary thrift (when you've got money in the bank but choose not to spend it). At the height of the financial crisis, these crosscurrents collided in spectacular fashion.

Since then, we've witnessed a divergence: The wealthy set has again spent, although they've done so in a more discreet manner. Those less fortunate -- many of whom comprised the former middle class before it was outsourced -- continue to struggle.

The resulting dichotomy is akin to a Modern Stealth Depression.

The causal factor for this divergence can be traced to the job market. While the Bureau of Labor Statistics maintains the unemployment rate is hovering around 8%, it has missed the mark in more ways than one.

To wit, the SGS Alternate Unemployment rate (with includes estimated long-term discouraged workers, which were defined out of existence in 1994, and short-term discouraged workers who have stopped looking) is roughly 23%, according to the folks at ShadowStats. To put that number into perspective, the unemployment rate during The Great Depression peaked around 25%.

A wise man once said, "This too, shall pass" and so it will; we will look back on this stretch as our grandparents once did and pass nuggets of learned wisdom to our children and grandchildren, God willing. From here to there, we must identify a personal balance that isn't just about living within one's means, but redefining what those means are and adjusting our boundaries along the way.

I understand many of you read Minyanville to get a bead on earnings or insight on the macroeconomic environment and we continue to do that in real-time each day on the Buzz & Banter (click here for a free two-week trial!). As this is also a forum for thought provocation and collective dissemination, I wanted to share these vibes as they're top of mind as we together find our way through these most interesting times.

As always, I hope this finds you well.


Twitter: @todd_harrison

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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