After two years of taking desperate measures to fight off a heavy handed recession, Mr. Bernanke’s reflation efforts are hitting his intended equity target (read: a rising tide to lift all boats?), but so far appear to be failing to connect with a much larger audience: Middle America.
Yes, Middle America is still reeling from the recession. And, although many economists are declaring the current macro forecast to be partly sunny, it will take some serious trickle down to get back on a path of prosperity for many. Healthcare. Hotdish. Housing. Education. Jobs. Gas. These are the socioeconomic hot buttons that matter to Middle America.
And stocks? Important, yes, but probably slotted somewhere between American Idol and Glee. For much of the 80’s and 90’s stock prices were seen as a symbol of prosperity. However, during the years following Y2K and the tech boom, the average retail investor has been burned badly, riding a roller coaster that dropped them off near the bottom (twice, no less), and emboldened many to never lift both hands in the air again.
To be certain, a sustained housing bottom and leveling off of the jobless rate would be a huge coup for Mr. Bernanke. However, stagnation in these key economic cogs does not have an immediate impact on the top nor bottom line of Middle America. And as housing and jobs pause, many are dealing with rising healthcare and education costs, while annual wage increases are at, or below, core inflation (watch: nothing to see here).
Add in rising food and energy prices and it becomes clear that the equity tide is not lifting all boats. No doubt the Fed is aware of pricing pressure as a by product of reflation, but the unintended consequence of social unrest abroad may be the warning shot across the bow imploring local government officials to take heed at home.
For the past 75 years, Middle America has endured the economic cycles, emerging stronger from each. And they will do it again. With a little patience… and some recognition.
Previously published as a blog by Minyanville.
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