Author: Tyler Durden
Over the years, as the WSJ notes, the only way inequality has really mattered to professional investors is 'if the rich are getting richer, companies that cater to them have better prospects'.
Lately, though, some big investors have worried increasing income and wealth gaps threaten the economy's ability to expand (discussed here and here most recently.) One reason U.S. corporate profit margins are at records is the share of revenue going to wages is so low. An economy where income and wealth disparities are smaller might be healthier; but it would also leave less money flowing to the bottom line, something that is increasingly grabbing fund managers' attention.
Over the years, the only way inequality has really mattered to investors has been as a factor when considering stocks. If the rich are getting richer, companies that cater to them have better prospects. Goldman Sachs Group, for example, recently conducted a survey that showed optimism among high-income consumers relative to low-income ones at a high and pointed investors toward companies like department-store operator Nordstrom and luxury-bag maker Tumi Holdings.
So the dilemma is - any "attempt" to 'narrow' the inequality gap will be necessarily restructive of the factors that are juicing stock prices and exaggerating the inequality gap BUT if stock prices take a hit, with ZIRP, firms will simply relever more, layoff (cut costs) more, and re-iterate dividend/buyback programs... A vicious circle with only one outcome - aptly described by Kynikos Associates founder James Chanos, who worried people have less incentive to participate in the economy if they have concluded "the game isn't fair."