Sam Zell Says Wall Street is Out of Sync with Main Street; He’s Right

Sam Zell Says Wall Street is OutWall Street is Out of Sync with Main Street, Says Sam Zell

Billionaire business magnate Sam Zell says Wall Street is out of sync with Main Street. The $4.8 billion dollar man and chairman of Equity Group Investments really isn’t saying anything the average American reading the news couldn’t have told you.

Anyone who visits Profit Confidential on a regular basis will realize that we’ve been discussing the growing and unsustainable disparity between the stock market and economy for a number of years now.

Still, it is nice to see someone who is familiar with the cold, hard pavement of Wall Street confirm what seems so glaringly obvious

According to Zell, he was looking at his stock screen last Monday when the stock market fell 300 points. Despite the wave of red on his screen, there was nothing he wanted to buy. “I didn’t see anything that jumped up and said… that’s value.” Adding, “We subsequently had a recovery that I don’t think fits any economic judgement.”

Incredibly, investors still have a hard time understanding what kind of impact years of artificially low interest rates from quantitative easing have done to the stock market. By lowering interest rates, the Federal Reserve removed “income” from fixed income assets like Treasures, bonds, and CDs.

That’s bad news for those 10,000 Baby Boomers who are heading into retirement every day, looking for their fixed income investment to help them live comfortably. Fortunately, there is a solution: the stock market! Where else can investors turn to create wealth?

For years and years, the Federal Reserve has sent investors scurrying into the stock market to seek returns. That’s been a financial boon for those who are liquid enough to invest or borrow money and take advantage of the bull market. But for the average American, the so-called recovery and bull market is an illusion.

Since 2009, low interest rates and cheap money have been fuelling the stock market higher. And, to echo Zell, the move doesn’t fit any economy judgement.

Stock Market Out of Step with Economic Reality

The stock market has been out of step with Main Street and basic economic principles since 2009. While the stock market is down in 2015, many analysts expect the markets to end the year on a winning note. How that can happen is beyond me.

Despite what Wall Street and Capitol Hill tell you, the economy stinks. Official unemployment stands at an impressive 5.1%. But that’s a misleading figure; in September, the U.S. only added 142,000 jobs to the economy and August’s figure was revised lower from 173,000 to only 136,000 jobs. Lower jobs growth is an ongoing trend in the U.S. On top of that, the underemployment rate continues to hover around 10%. (Source: Employment Situation Summary, bls.gov, October 2, 2015.)

If Americans can’t get good jobs with long-term opportunity, they cannot get ahead, make money, and support an economy that gets the vast majority of its gross domestic product (GDP) from consumer spending.

Add it up and Americans aren’t making as much as they used to, debt levels remain high, and somehow more people receive food stamps now than they did before the so-called recovery helped Wall Street enjoy one of its most successful bull runs. In 2007, 26.31 million Americans received food stamps; today, that number is an eye-watering 46.5 million. (Source: Supplemental Nutrition Assistance Program Participation and Costs, usda.gov, last accessed October 7, 2015.)

It’s not the trickle-down effect the government wants us to embrace, but you can see how the current economic situation is impacting Wall Street. S&P 500 companies experienced the first back-to-back quarterly declines in earnings and revenues since 2009 and the Dow Jones Industrial Average, which is made up of the 30 largest American companies, is down more than five percent year-to-date. Further, the S&P 500 is down around three percent. As a leading economic indicator, the stock market is saying trouble lies ahead.

In the third quarter, earnings are projected to decline 5.1%, significantly higher than the one percent decline prediction at the start of the third quarter. Third quarter revenue is forecast to slide 3.4%, also higher than the initial projected decline of 2.5% at the start of the quarter. (Source: Factset Key Metrics, Factset.com, October 7, 2015.)

Wall Street continues to be out-of-step with Main Street. Eventually the stock market will run in step with Main street; after all, the markets are only as strong as the stocks that go into making them up and stocks are only as strong as the underlying fundamentals. When you take out artificial interest rates and irrational investors, stocks are in trouble.

Sam Zell is correct when he says Wall Street is out of sync with Main Street. It’s just too bad more analysts and economists aren’t paying attention to the economic data.