For Our Economy, Small-Caps Are What Really Matter

So Thursday's decline is now dubbed the "Taper Tantrum," and clearly markets are nervous about the pace at which the Federal Reserve will withdraw its support for federal deficit spending. (Let's be clear: The Fed is enabling the deficit by buying the Treasury bond issuance. Absent that support, our federal government will either need to move closer to balance, or fully fund the deficit privately, thus risking the long-dreaded "crowding out" that can force interest rates up.) 

The pace of Fed withdrawal will be driven by employment, and in that vein I wanted to share a very interesting analysis of job creation in the U.S. The analysis was done by Paul Dorfman, one of the brilliant senior staffers at the New York Stock Exchange. His insight was to cross-correlate market capitalization and company size with headcounts, in order to see what companies really matter to employment. His key conclusion: "America's smaller public companies hold a key to higher employment. We just need more of them. Big companies are great but they don't do the trick proportionately when compared to smaller companies that don't operate with the same economies of scale." ...309 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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