Late this afternoon, at 3 P.M. EST, an infinitely more revealing statistic was released which has had an impact in the markets over the last several months.  Have you been wondering why retail stocks like Wal-Mart or Sears Holding Co. (down over -50% in the past two months from approx. $125/share to $59/share) have been performing so poorly?  We have been reporting about concerns that the Chinese Yuan revaluation may really put the clamp on margins at retailers.  But there is more.  “THE” revealing statistic released this late afternoon was consumer credit for May and April, which measures consumer borrowing for the nation.  In May alone, consumer borrowing dropped by -9.1 billion, and for April the consumer borrowing number was re-adjusted negatively from a positive gain of $995 million to a -14.9 billion for the month of April.  Associated Press reports that credit card borrowing has fallen for 20 straight months.

Remember that consumer spending makes up for about 70% of our national Gross Domestic Product (GDP).  Our GDP is dropping.

On one hand, it’s the best thing that can possibly happen for American families = reduce spending and lower their credit card debt.  These statistics are telling us that we are doing a good job here.  On the other hand, without consumer spending our current economic structure suffers.

This is why Treasury Secretary Geithner has spoken about the need to reduce the percentage of our GDP related to consumer spending.

Here’s a thought about government statistics that will give you a jolt.  Do you see that downward revision of -$14 billion for April?  Have you ever thought about what would happen to American bond sales if our GDP was revised significantly downward?  That would result in a seismic shift for all of our markets – not just stocks.

In our country, we measure many things as a percentage of GDP.  All of the U.S. debt and borrowing is measured and justified in terms of GDP.  Look out if that number ever needs to be significantly lowered.  Maybe that would finally end the circus of selling bonds to foreign nations to finance our enormous government spending.  Just this week we were thinking about government spending- 

Since social security was implemented in 1935, we have had many more workers than those collecting retirement benefits, so the excess money has been spent by the government instead of saving the surplus.  Unfortunately this excess money hasn’t been enough to satiate government spending, so the next thing that the government has done is sell bonds, promising to pay the money back at some point in the future.  In other words, two enormous pools of money have been established by the government to fund spending that far exceeds our tax revenues.  And this money will need to be paid back.  We are not pointing at either democrats or republicans here.  The SMC is not a political journal.  Much of the thinking behind this spending can be linked to John Maynard Keynes, who postulated that government indebtedness was justified if it led to future tax revenues that could be used to pay off the debt.  Of course, our politicians have taken this thinking to extremes, and forgotten that this spending needed to be on efforts that yielded real future productivity, and not just current expenditures that lead to an entitlement mindset.

Now that we either have your attention or you are totally bored, let’s get on with the most pressing immediate issue of all = Jobs.  We’ve reported in previous SMC 15MinuteStocks Market Updates that our real unemployment or “U6” as measured by the Bureau of Labor is perhaps around 17%.  This week a dear banker friend of mine sent me a very insightful article written by the former Chairman and CEO of Intel Corporation, Mr. Andy Grove and published by BusinessWeek.

In the former paragraphs, we have been talking about our national government in Washington D.C. and the extreme spending that has been taking place for a long time that has not led to infrastructure improvements or job creation, but simply to enormous indebtedness and over time to a entitlement mindset.

Now let’s use the Andy Grove article, above to discuss developments on the west side of our nation in Silicon Valley.  In this very important article, Mr. Grove points out that Apple Inc. employs 25,000 people in the U.S., but that 250,000 people work in China to manufacture their products.  He uses Apple Inc. as an example, but makes clear reference to the other tech giants like – HP and Dell… – doing the same.  Of all people, we are strong supporters of Apple’s creativity and genius. 

On the other hand, we have also mentioned recently in our writing what Henry Ford did to usher in the prosperity of the industrial age by doubling the wages of workers, which enabled them to be participants in the industrial revolution – not just as workers, but in having their lives enriched.  We have mentioned how very few jobs have been created in the technology manufacturing space in America due to Apple’s innovation.  We have now come full circle to the point that our innovation no longer increases employment in America, but impoverishes us as we transfer the wealth of the manufacturing wages off-shore and the loss of the brain-power and subtle linkages that exist in developing new technologies resulting from the very acts of solving problems that arise in the manufacturing process, all for disposable electronic devices that become obsolete.  It is a blessing to have a humble man like Mr. Grove – not only establishing a clear picture of our thinking (with measurables) that has led to the current problems related to job creation and loss of technological prowess, but also providing ideas on how to proceed ahead.  As the former leader of one of the most successful corporations that the world has ever known, he has real authority.

Isn’t it striking that such thinking comes from a heart of concern – in this case – Mr. Andy Grove, and not from American industrial leaders like Mr. Jack Welch – who has in stark contrast left a legacy of leaders like Mr. Bob Nardelli (Hard Choices article from BusinessWeek) – establishing new frontiers of extreme CEO pay, outsourcing, and profits at the expense of job creation?  We have mentioned before that capitalism without a conscience is awful.  We are currently reaping the consequences of such capitalism.

On the west coast, we have experienced little job creation during a period of real innovation and on the east coast, we have government largesse which has led to immense indebtedness, stimulus “spending” instead of investing, and a nationwide fear of hiring due to rising indirect costs of labor.  In between lies 3000 miles of stretched families, municipalities and states – needing the benefits of real jobs.

For an understanding of our daily view of the markets and individual stock opportunities ...   Start YOUR 14 DAY FREE Trial NOW!  

Only $29.95/month… Month-by-Month Subscription.  Cancel Anytime.

Click here for a glimpse of the SMC Investment Returns.

Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our SMC Intraday Update, SMC 15MinuteStocks Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the council of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : Please understand that the Stock Market Companion may hold positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

---