I am an unintentional shopper, which means that I never really go shopping. If I pass by a window and see something that interests me, I will go in. So as I was walking to the subway last week, I saw a decorative pillow that I thought would be great on my couch. I go in, ask for the price, and could not believe when the sales person told me the price was USD 465, which means more than $500 with tax. I was wondering who would buy that pillow, and thought that it would be probably the same person who buys a 30 million dollar apartment, or 3 Hermes bags at $15000 apiece, or a 2000 dollars sweater. I have been dismayed with the money certain people, being them Americans or Brazilians, are spending. According to a Wall Street article, the price of luxury goods increased by more than 50% in the last 4 years. In New York, bid wars for apartments are back and developers are looking for land in order to build new condominiums. Whoever drives a car in New York has to go further and further to fill the tank: in 2003 there were more than 40 gas stations below 135th street. In 2014 there will be less than 20. As the lots are sold to developers, the lines to get gas keep growing. In Miami, the real estate prices are going up and new developments are being bought by Brazilians, Venezuelans and Argentineans. (Food for thought: What do these people have in common, besides being from Latin America?).
It is also interesting to note that retailers geared toward the middle to low income consumers don’t show such a rosy picture. Target sales fell 46% compared to last year, and Walmart and Sears are struggling to keep their sales flat. More competition, online sales, and a muddle through economy explain that. Also, the end of the payroll tax exemption and the cut on food stamps are not helping retailers and grocery stores. That is why some stores will open earlier on Thanksgiving Day and maybe instead of Black Friday we will have Black Thursday.
One could argue that this phenomenon is different from what has happened in Brazil, where the increase of the low and middle classes helped by consumer debt led to very good results for stores who serve those classes, such as Magazine Luiza, Renner, among others. Notwithstanding the insistence of the press and government officials to emphasize that fact, they forget to mention that the growth of the A/B class in Brazil was greater than the growth of the middle class. To be honest, I didn’t realize that either until very recently. Last week, at Bradesco’s annual event for investors in New York, Luciano Coutinho, (BNDES’s president) was the keynote speaker and he talked about the infrastructure program in Brazil. In the body of his presentation, there was one slide about the share of the different economic classes in the Brazilian economy. That slide showed that between 2003 and 2013 the C class grew from 66 million to 102 million. The same slide, however, showed that the A/B class grew from 13 to almost 40 million. Hum….. The C class grew 1.5 times, but the A/B classes almost tripled in the same period. Interesting.
A friend of mine was recently in Italy and told me that it was hard to walk in the streets of Rome due to the human “traffic”, which made her ask herself where the recession is. I have been asking myself the same question every time I see the roads packed at daytime, expensive restaurants totally booked, or when I try to buy an airplane ticket for a moderate price and it is either sold-out or the remaining seats are sold at obscene prices. Of course the recent mergers and cut back in flights to adjust to a muddle through economy helped but still… I am not ignoring millions of people in the US, Brazil and around the world who are struggling to survive. As I said in the beginning, I am appalled by the ones that are spending $500 on a pillow. The truth is that different classes are coming out of the recession -- if they are coming out at all -- under very different conditions. The almost 50 million Americans who do not have health insurance probably know that very well. I guess the recession's impact was not created equal.
Speaking of health insurance, it is impossible not to talk about the Obamacare debacle. That was – and still is -- a spectacle of incompetence and political turn around. In September when Republicans caused the government shutdown, they reached their low marks in popularity. With the launch of the health insurance website, it was the Democrats’ turn to lose popularity, and Obama's turn to lose credibility. Computer and software glitches happen all the time, but it is amazing that it is happening in this magnitude in THE program that was supposed to be part of Obama’s legacy.
In the meantime, the US stock market keeps going up and the non-believers keep missing the boat. This year has been marked for the repetition of a pattern: every time the FED is about to have a meeting, the stock market goes down a little, people start talking about the end of QE, and stocks suffer a little bit. When the FED says it will keep going, shares go back up and the non-believers miss again. There are some people, like me, who ignore that noise and carry on. That is because I believe that if the FED changes its policy it is because the economy is better and if so, stocks will do well. The others believe that the rally in the market derives from the monetary policy, and it will end with the end of that policy. So far, my theory has worked.