Jigsawed: KOL Finance Reads Its Section and Shares Out With the Group

This morning we took a look at an analysis of the current market upswing put out by J.P. Morgan. We each took a section to discuss with the group. The first section outlines the various domestic factors that have contributed to market growth. There were a few factors that struck us as particularly interesting. The article cited excess US labor/industrial capacity and went on to mention that US labor cost are low relative to profits & GDP. This let us to discuss the apparent disconnect between markets flourishing while there is high unemployment. Essentially it is an employer's market, where workers are in greater supply, and command lower wages (both real and in the form of benefits). Obviously, this makes a business more profitable, but what about the morale and prosperity of the work force itself? Surely workers who feel unfairly compensated (or in the least are more financially strained) will be less prone to productivity and even innovation. It breaks down to two business models, investing in short-term profits, vs. investing long-term in building a solid and experienced (and potentially more satisfied?) workforce.

While this sounds like a loaded analysis on our part, it has to be noted that each model has its strengths and weaknesses. Obviously there is a human (and possibly economic) cost to having high unemployment and workers who are not compensated as much as profits would allow. On the other hand, companies such as Bell South or more recently Kodak are paying the price for trying to take care of their workforces. It is indeed a complex problem, and the solution most likely lies in finding an equilibrium between the two conflicting approaches.

In the next section, this imbalance was reinforced with the prosperity of high ticket stocks, such as LVMH and Coach, which could basically be thought of as the Jersey Shore ETF.

And in the final section, thee factors to consider with everything else:

1. Unexpected inflation. We have been at more or less no inflation for a while. This will probably continue since there is so much spare capacity in the labor markets.

2. Chinese economic growth hasn't been crazy, but we'll have to wait and see.

3. Iran. So, it would be really difficult to forcibly deal with Iran's nuclear proliferation. This means that we should make nice-nice, and not go to war. This would be good for the markets.

The big picture is that we are sort of out of the economic woods. Maybe?

For next week, we plan to dig through Asian investments, work through Avi's fund manager picks (what they are, why they are chosen, etc.).

Profit!