{"id":2214,"date":"2009-11-12T12:43:33","date_gmt":"2009-11-12T17:43:33","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=2214"},"modified":"2009-11-12T12:43:33","modified_gmt":"2009-11-12T17:43:33","slug":"small-caps-large-caps-unemployment","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=2214","title":{"rendered":"Small Caps, Large Caps, Unemployment"},"content":{"rendered":"

I’ve been giving some thought to the divergence between the small and large caps and how it may or may not relate to whether the economy is or is not improving. Here are my thoughts…<\/span>
\nThe economy is NOT improving, but the large cap companies, which control the major indexes which are reported by the major media sources, have the ability to outsource jobs to cheaper regions of the world and all of them do significant enough business overseas, they benefit greatly from a falling dollar. Small caps cannot tap these avenues to the same degree. This is why the large caps can move up and give the appearance things are improving while the small caps lag (the small caps have a higher percentage of their workforce here in the States and a higher percentage of their revenue comes from here too, so they’re probably a better indication of the state of our economy).<\/span>
\nIn fact some companies (Hewlett-Packard is an obvious one) make no attempt to hide their intentions to move every job possible out of the country. What if they accomplished this, or at least came close? The company would do great; earnings would be stellar, margins would continue to rise, the stock market (the Dow in particular) would give the appearance business is on the up-and-up, but in reality the benefit to the good ol’ US of A would be nonexistent. <\/span>
\nIs this the direction we’re going? Will most large caps companies do great because of cheap overseas labor and a favorable exchange rate while the real economy, the smaller caps that do most of their business here at home, tell a different story?<\/span>
\nAnd if this is the direction we\u2019re going, it goes without saying the unemployment rate can continue to rise at the same time the Dow keeps chugging along. The stock market would suggest things are getting better, but in reality they\u2019re only getting better for the large caps which are tapping cheap labor sources and benefitting from a weak dollar, and less and less of the benefit is being keep home.<\/span>
\nTypically the stock market is a good barometer for the health of the economy – offset by 6-9 months. If the market trends up today, 6-9 months down the line the economy will follow. At least this is how it’s always been. But if my theory is partially true, then it’s possible for a company to be headquartered here in the States and trade on the NYSE or Nasdaq and give the impression that things are great when in fact the only money flowing back to the States is bonuses to high level execs. Otherwise the money stays overseas. Business may in fact be great, but America sees none of the benefit.<\/span>
\nWhat\u2019s the difference between a company headquartered in China that sells products here in the States and a company headquartered here, but has most of their employees overseas that sells products here in the States. I see very little, if any, difference. <\/span>
\nThe internet and advanced communication networks somewhat level the playing field. No longer do you have to be in a certain location. The downside is that large companies don’t have to be where you think they are either.<\/span>
\nWhat are the long term ramifications? Will the Dow keep going up and up while the unemployment and underemployment rates hit 20%. The media, which is owned by the large corporations will report the great progress of the market averages while Main Street deteriorates. <\/span>
\nIf I\u2019m partially right, should anything be done? Or should the everything be left alone and whatever happens, happens.<\/span>
\nYour thoughts?<\/span>
\nJason Leavitt<\/span>
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