Today Hugh Johnson, the CEO of Hugh Johnson Advisors, made a statement that makes me think he is smoking crack as well:
Johnson says while Wall Street’s benefits are clear and well documented, Main Street has benefitted in three keys ways itself.
1) Unstable Banks Don’t Lend
Johnson begins with a point of order by saying the overused colloquialism ”Wall Street” is not limited to investment banks, brokerage firms or even the stock market, but is really a reference to the entire commercial banking industry.
The term ‘Wall Street’ has never been used, anywhere, EVER, to refer to the entire commercial banking industry. The term ‘Wall Street’ means the large New York City banks and the stock market.
That said, Johnson concedes that, yes, the Fed very much helped Wall Street “and that was by design.”
Probably the only true statement in the whole article.
2) Stocks and Housing Prices Are Way Up
As the latest Case Shiller data show, average home prices rose 13.3% in the past year. This, at a time when the all the major stock indexes are cruising to news highs almost daily. Their combined consequence is what is known as “the wealth effect” and reflects a general sense of well-being for the average household.
This is not the ‘wealth effect’. The wealth effect is the fact that when household wealth increases, households increase their consumption. This is actually the inflation effect:
While some my try, few have successfully argued that the years of so-called “Q-E” by the Fed have not played a major role in reflating the stock market.
Ouch, my head hurts after reading that. And no, I didn’t change a thing, that’s how it reads in the link. What the author of the article is trying to say is that Quantitative Easing is responsible for the increases in the value of stocks. Which, by the way, contradicts what Mr. Hugh Johnson is saying.
3) Low Rates Boost Borrowing, Ease Deleveraging
And finally, Johnson points out that throughout this entire recovery process one of the consistent headwinds stated for its slower-than-desired pace is the fact that consumers and households continue to deleverage or get out of debt.
“So the man in the street, if you will, has improved measurably,” Johnson says.
Which is great! The ‘man in the street’ isn’t borrowing, he is reducing his debt. But I don’t care what the NBER says, the ‘recovery’ never happened. Official unemployment is still over 7%. More and more people are leaving the labor force:
We are still in the Second Great Depression. And the Fed isn’t helping anyone who isn’t on Wall Street…