Tuesday, May 01, 2007

Market May Day

Said quickly – MarketMayDay - sounds like a distress call. The U.S. stock market is anything but distressed these days, with the Dow topping 13,000 last week. This market’s May Day is more a celebration of the happy summer days to come. The fires of inflation have been stamped out (mostly) and earnings reports have produced some nice surprises.

The history books say May 1st festivities originated in European pagan cultures, but the Catholic Church dressed it up as the Feast of St. Joseph the Worker. That transference has inspired socialist and labor movements to use the day for political statements.

That old socialist Castro was reportedly a no-show at the annual Havana May Day Parade, but immigrant workers by the thousands took to the streets in the U.S. to campaign for immigration reform. There were not so many Mexican flags as the 2006 demonstrations, but the spirit was still the same. Workers need jobs but their hearts still beat in time to Viva la Mexico…Ecuador…Costa Rica….

Should investors be more concerned about immigration issues? In the
Crystal Equity Research coverage universe as well as the Small Cap SEARCH coverage group, which are both collections of special situations, low-wage labor is rarely a factor of importance. Yet none of my favorite small caps are immune to the inflationary forces that run through an entire economy if labor demand exceeds supply.

U.S. unemployment at relatively low levels, the question is whether illegal immigrants are providing a vital release valve for a heated U.S. economy. The last time the U.S. Citizenship and Immigration Service tried to take a count of illegal immigrants was 2003, when they pegged the population at 7 million. However, the Pew Hispanic Center, a nonpartisan research group in Washington, estimates the number is closer to 12 million.

What would be the impact if 7 million to 12 million "strong backs" were no longer out working? I believe the effects could go far beyond uncut grass and back-ups in deli deliveries. I expect the impact would run fully through the retail and housing sectors even if only a portion of the illegal alien population were no longer available to punch a time clock and make purchases.

Business appears petrified of the consequences of such an eventually, which is why I suspect there is so much opposition to a guest worker program. Yet from the perspective of shareholders, it seems intelligent to ask as much accountability of the lowest-paid worker as is required of executives.

President Bush was not in any May Day parades either, but he has finally come out with appeals to Congress for a
temporary worker program. Such an arrangement could allow U.S. business and industry to dodge the bullet of inadequate labor supply while ensuring at least an attempt at lawful behavior.

Viva el Dow!

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