More Equity Bubble than Bubble Gum in New York 

Nick Hood, June 2011

Arriving in New York immediately after the stratospheric success of the public listing of LinkedIn Corp when the stock doubled in price on the first day’s trading, the temptation was to ask whether investors’ memories really are so short that the dot.com bust of 2001 has already become pre-history.  A near repeat initial performance only days later in the Pandora Radio IPO made cynical observers recall the old cliché about boxes and their contents.  Fortunately common sense prevailed and Pandora ended its first day up by only 9%. 

America’s post recession economy is a curious mix of entrepreneurial enthusiasm and disappointing statistics.  Job creation is sluggish at best, with only 54,000 non-farm posts created in May.  Even more worrying was a negative survey among small companies, where the National Federation of Independent Businesses reported a third consecutive monthly drop in business confidence and confirmation that the majority of respondents were cutting jobs.  With house prices now officially in double dip retreat, core consumer prices trending upwards at their fastest rate for five years and an imminent cutback in Medicaid benefits for millions of low income Americans, there is little to bolster confidence amongst consumers either. 

The equity market is suffering, with US financial sector stocks down 14% since their February peak.  The creditworthiness of investment grade corporate bonds has fallen sharply to their worst level since November 2010, based on credit default swap indices.  Even junk bonds are suffering, with the Merrill Lynch US high-yield benchmark spread over government bonds back to the levels at the turn of the year.  The only good news is that things are not as bad as they were in the summer of 2010 and the economy is on a gentle but hesitant upward growth curve. 

Worries over the Eurozone sovereign debt crisis persist, if only to remind America that its own debt levels are hardly something to boast about.  Many bankers and professionals are saying privately that where Greece goes today, the US could head tomorrow unless there is an early and far greater commitment to reining in the rampant government deficit. 

But whatever else, New York’s restaurants seem to be prospering.  If finding the wonderful Gotham Bar & Grill packed out on a Sunday evening was a surprise, then the tide of hungry humanity being fed high class Italian fare at the Trattoria Dell’Arte on 7th Avenue was an indication that fragile consumer confidence does not rule out having a good time. 

And the Alexander McQueen retrospective exhibition at the Metropolitan Museum of Art is still drawing huge crowds to marvel at the extravagant imagination of the late lamented and iconic fashion designer. The wild fantasy of the clothes on display in this riotous multi-media experience might easily be a metaphor for the changing realities of America’s economy and its place in the world order.  The next generation of cultural over-achievers may well find their life’s work being celebrated in Beijing rather than New York, despite the willful mistreatment of Ai Weiwei.  

This article also appeared online in Financier Worldwide and Management Today