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A Tale of Two Economies & The Last Biden State Left Standing - Top 3 Takeaways – August 2nd, 2022
- It’s the little guy that’s getting hit hardest. Right now, that’s proving true in business and it’s true in our personal lives. Who gets hit the hardest by inflation? Of course, that’s not a complicated question. But what’s not so obvious is where this recession is really hitting hardest. It’s not with the largest most valuable companies. It’s with the smallest. Just as it's common sense that those who earn the least are going to be the least equipped to deal with 41-year high inflation, and thus are the most vulnerable to a recession – the same is true with businesses. It’s just as logical to deduce that the smallest companies are likewise those which are least able to mitigate the impact of inflation pressures on their businesses and short-term downturns in the economy. But what’s different this recession, aside from those who are attempting to deny it, is that there’s very much a tale of two businesses taking place. If you’ve been paying attention to the stock market of late you know we’ve rallied off the lows. Why?
- While the overall economy is in recession corporate earnings aren’t. With over half of publicly traded companies having reported their earnings thus far this quarter, the average outcome is an increase of 6%. But even more impressive than earnings growth in a recession is revenue growth in a recession. That’s been twice as impressive. The average company is posting revenue growth of 12% year-over-year. Yes, some of the growth is international, but no, that doesn’t come close to explaining this all away. What’s happening is that small businesses are getting crushed at the expense of large ones which are gaining market share by taking their business. The most recent survey of the state of small business from the National Federation of Independent Businesses found it’s the worst on record in the 48-year-old survey. This is driven by a net 61% of small businesses saying business is declining, with a net 25% more small businesses saying earnings have already declined. This recession doesn’t impact everyone equitably, but it’s clear it’s hitting the little guy the hardest and this analysis is a reminder that if there are small businesses that are important to you, it’s a good time to prioritize patronizing them when you can. In the survey a third of all small businesses said they’re at risk of being forced to close within the next three months. Amazon.com does not carry that same risk. The impressive performance of corporate America is coming at the literal expense of smaller businesses. It’s a tale of two economies for sure.
- And then there was one. As in only one state in which most voters look at the quad vaxxed, COVID-rebounded President of the United States and think, yeah – give me more of that guy’s sweet political action. If there’s any silver lining to the collective funk we’re living through thanks to the policies of our current president, it’s that almost everyone gets it. When last I discussed President Biden’s historically low approval ratings, two weeks ago, it was because there were only two states in which he still had a net positive approval rating. Well, half of that equation is no more. Folks in the land of the Bern have apparently recovered from their communist ice cream induced brain freeze sufficiently to realize that Joe Biden doesn't exactly have it going on. Yes, ole’ Joe has now lost Vermont as well. The lone state where he retains net positive approval? Hawaii. So, what’s up there? I suspect they’re so far removed from reality that they’re not living in it politically. It’s the answer I’ve got. While he’s underwater in the other 49 states, he still sports 50% approval to 38% disapproval in the land of Leis. Now, there are two ways of looking at this development. The glass half empty approach...misery loves company. The glass half full...the first step to recovery is acknowledging there’s a problem. For voters in 24 states which 21 months ago looked at Joe Biden and said – yeah give me that guy – this is a first step. It’s rather remarkable to see Biden with a net negative ten-point approval rating in California and an even worse 13-point deficit in New York. What all of this means is that there’s hope yet. When Jimmy Carter became president how many people thought eight years later Ronald Reagan would win 49 states (which is what happened in 1984). How many people since then have thought it’d be impossible for a politician to win 49 again? While I’m the first to admit the odds of that happening anytime soon are extremely low, the last time we had 49 states reach consensus on a political opinion regarding a president – was when Reagan won 49 in ‘84.