The Cycle | March 06, 2013
>> that. the markets are still on the climb after the dow had a record-breaking day yesterday. if you look at wall street , you would think the economy is in full recovery. the dow pierced 14,300 for the first time ever. the s&p is within striking range because among major drive drivers, they rely on corporate profits. at the same time wages are at record lows and you compare them to gdp . here's how jim cramer explains it.
>> you would be surprised to see how in many of these companies they have far fewer employees so don't expect them to be thes who take up the employment stock. the vast majority have not hired a person in this run off. that's why they feel badly and the stock markets are good.
>> that was calm actually. the $85 billion of sequester cuts. more are not feeling the impacts and they won't help things like fining a job and taking home more money at the end of the day . what the cuts could help are the markets because they show that d.c. is doing something to address the deficit. a financial reporter for "the washington post " who writes about the disconnect in the post. i guess that is sort of the interesting thing to me about the last few days. the sequester went into effect last friday and you would never know it. looking at the markets right now, you look at the impact and the consensus is this is going to eat into gdp and not going to grow the way it would have. this will affect poor people significantly. wall street will not feel any of the pain. is that right?
>> right now wall street is trying to make sense of what's going on in washington like a lot of the rest of the country. the day the sequester went into effect, the dow went up that day. it's like they view a lot of what's happening here in washington , a lot of political drama and the same with the fiscal cliff. i think they are used to seeing the same movie over and over again. not paying attention as much.
>> exactly where i'm thinking of going with this, wall street is really just ignoring washington through all of the hysteria with the fiscal cliff and the debt default and the sequester. have they decided to plug their ears and go along with business as usual? if so, how do they do that. how do they ignore and how can i do that?
>> tips for us.
>> how can i ignore washington .
>> they are starting to figure out the answer question. what on earth is going on in washington . with the dow and the stock markets , they are looking for the bottom line . the u.s. firms, ge, ibm and they are doing great. turning in record profits. last year we saw corporate profits as a result of gdp hitting an all time record. for them, whatever happens in washington doesn't have much effect on the sales in china or brazil or overseas. that's where they are getting more money. you are seeing this growing vast disconnect between corporate america and the rest of the country that includes washington .
>> the point you made is important. globalization is sort of the internationalization of the corporations and economies. that means they don't have to care about what happens in the u.s. economy . they can thrive even if we struggle.
>> the dow went up to the record on overnight news from china. they are saying we are looking for 7.5% growth and we are willing to put more money into our economy to get there. that was enough for the dow . let's look at china. they are going great and doesn't matter as much in super and the u.s.
>> you mentioned ge, ibm and hewlett packard doing really well. is that sort of growth and pos prosperity just at the top tier ?
>> tech in particular has done really, really well since the recession. you are seeing it pretty much across the dow . they are a cross section of big companies. s&p 500 , you have a bigger group. fairly large companies that are a pretty huge slice of the economy doing really well. as if it never happened in the first place.
>> looking at the bigger picture, the numbers right now are astonishing. it's part of a larger trend we have seen over the years. profits becoming a larger share of gdp and wages becoming a lower and lower share of gdp . they are at all time lows. what led to that disconnect and is there something that our government can do that we can deal with at a policy level to get those back into line.
>> i think the government is at a loss. you hear if you cut our taxes and regulations, it will stifle the economy. that lever if you keep pushing on it has not quite worked in receipt years. you have this issue where coming out of the recession, a lot of companies cut back in the workforce the layoffs we heard and they discovered the workers we have left can be more productive and you don't have to hire back to the levels and you can make a lot of money.
>> i'm struck by what you were talking about with china. the chinese government set this growth target of 7 1/2% that would be astronomical by our terms over here. that is giving the markets confidence and one of the reasons why they are coming along right now. they are doing this by investing a lot of money into the economy. over here the conversation say lot more along the lines of austerity. is there an example in can china and something we should be learning?
>> the chinese are obviously a lot less hesitant about spending on infrastructure, something that a lot of people say we should have political push back against that kind of thing. the chinese are spending a lot of money in their economy and it worked so far. the lessons are limited because they are spending a ton on all kinds of airports and highways and the leaders this week are saying we are spending a lot of money and depending on construction, we need to move towards having more consumption and having the consumers buy more stuff. in a way they want to look more like the u.s. and the u.s. thinks it should look more like china.
>> thank you for that. not conservative enough. the latest governor getting the cpac snub. the donald will still be there. that is next as the cycle rolls on for wednesday, the 6th of march. max