Any hoot, back to the chase. Now the market over the past week has been down more than up, today somewhat significantly so. Bloomberg blamed it on the World Bank revising its forecasts for this year and next to be more pessimistic. I scratched my head reading this thinking I had already read that tidbit of information some time ago. Turns out, I was right.
http://www.nakedcapitalism.com/2009/06/world-bank-cuts-growth-forecast-mid.html
So why is Bloomberg blaming today's drop on this week-and-a-half old news? Guess they have to blame it on something. I blame it on people waking up to reality.
Missing TARP Dividends - Not a Good Sign
Some banks seem to be failing to make their TARP dividend payments to you and me. Now this could be due to various factors because the TARP agreement allows them to miss six before being in default. Now it could be they have better ways to make money from the money, they have better uses for the money or, maybe, just maybe, they do not have the extra cash they need to pay the dividend and still make ends meet. You decide.
http://www.calculatedriskblog.com/2009/06/number-of-banks-suspend-tarp-dividends.html
Retail Woes
I mentioned over the weekend some reasons for retail to suck wind for a while. Well, here is yet another reason from Calculated Risk. They note some pretty solid evidence that the housing boom created a false wealth effect and led to consumers spending money they did not have. Now that the opposite is in place on housing, the opposite is in effect on consumer spending. Go figure.
http://www.calculatedriskblog.com/2009/06/housing-wealth-effect.html
Calculated Risk has another rather entertaining piece on what the brains at Harvard were saying about housing in 2005. Apparently everything was coming up roses and the risks were quite minimal. Glad I am not smart enough to go there.
http://www.calculatedriskblog.com/2009/06/harvard-on-housing-2005.html
Now I am returning to my old drum beat; we have been living above our heads off massive debt and this has helped support and stimulate a world economy. We are now in big trouble because:
- we still have record levels of debt to pay down;
http://deadcatsbouncing.blogspot.com/2009/06/will-healthcare-costs-burst-us-debt.html
- we have no economic model in place in the U.S. to provide the jobs to pay off this debt (our GDP is 30% based on a financial sector, which was built on a house of derivative cards) and fully two thirds of our GDP is based on consumer spending, which is a bit circular in terms of helping to support further consumer spending;
- we have an aging population of baby boomers that just lost 40-50% of their retirement and significant home value but they are going to be retiring beginning in a year or two, with increasing percentages over the next 10-15 years;
- our government cannot fund its upcoming Medicare or Social Security obligations, much less fund the current multi-trillion dollar bailout - which in time could/should lead to a severe weakening of the dollar; and
- we have more than twice the retail footage per person here than in the nearly any other country and there is no way for us to support this much retail.
And at least one Nobel Prize winning economist says it will take us a while to regain our lost wealth. He is not saying this will be a lost decade. He is saying it will be a lost decade and a half. Tell that to those baby boomers. Wait a second, I'm a baby boomer!
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKMxwUC4D3nw
Spent
I do not like to say it but we Americans are, in a word, spent. Our savings are spent, our retirement is spent, our future - at least for the short term - is spent. Neither we nor the world should be looking to us to spend our way out of this mess. We did so the past couple of recessions but now we are spent. We do not have the means to fund our way out of this recession despite our government's desire that we do so . And we shouldn't in any event. Spending and creating new bubbles got us into this mess. So what might happen here?
There are a whole lot of possibilities, but one is that some other country takes up the spending mantle. I do not see any easy candidates as the world is in a mess, but we Americans are spent and someone else has to take our place, perhaps several other countries have to do so. Between that and a dollar about to become toast, our products - what few exist - might become competitive, even cheap, so - ironically - we may return to a country based on exporting our stuff elsewhere. Okay, I doubt it. We are too spoiled for our children to return to blue collar jobs. Our children are too spoiled from our spending ways to live within the means of a blue collar wage. They will not be able to afford all the big screen TVs, cars, computers, cell phones and other niceties we have made them accustomed to. We will see. I don't think they will have a lot of choice. I don't see a lot of high-paying financial sector jobs in our future.
Yet let me mention this. At the height of the U.S. manufacturing and exporting several decades ago, before the jobs floated elsewhere, Americans were making more - adjusted for inflation - than they are today. Despite us shifting more of our economy into services and financial we made less more recently. I do not have the answer here but I suspect we had a lot of people working retail selling to that two thirds of the GDP tied to retail and retail does not pay a lot.
Personally, I worked a number of factory jobs in Indiana growing up during summers while in college and I enjoyed it. There is a certain satisfaction from building something. I was not good at it, but I enjoyed it. And it paid the most money I made for that period and for many years into my professional career. Many of my high school classmates were making more at factories than I did as a lawyer out of law school. When you consider my seven years in college and law school and the costs of same, it undoubtedly took me 12-15 years after high school just to break even with those who went into factory work straight out of high school. So factory jobs are not a terrible place. I am not thinking we are going there just yet, but we should become more competitive in the years to come, so it could become part of the dynamic.
So where does this lead us - I have no idea. Truth is, as you should know by now, no one does. The next few decades for this country are, in my opinion, going to be something totally different than what we have grown up with the past few. My fear is it will be a rough time for all.
The China Syndrome
I read an interesting piece last week and for the life of me cannot find it. It noted that while Chinese officials are bashing the dollar a bit and calling for a new reserve currency, this seems to be a distraction from what they are really doing. They are quietly reducing their purchases of Treasuries (and domestic demand is so far filling the void) and they are buying commodities. This is significant for a few reasons. First, it shows that our biggest foreign buyer of Treasuries is now not so hot on doing so. With dollar devaluation likely, China is not going to hang around for it. Second, they do not need the commodities now but commodities are a nice place for China to put its reserve dollars for future keeping. After all, the dollar can get toasted and Treasury reserves follow (and why buy Treasuries when the U.S. is not buying your products much), so better to use the money to buy copper, zinc and the like. The commodities are in limited supply and eventually everyone will need them. So China has been putting increasing dollars into purchasing ore companies and the like. I think it is a brilliant move on their part, yet you need to realize that this is part of what has been driving up commodities lately. It is not like China needs these now, it just is buying while the price is low and while the old investments make no sense, so the rebound in commodities seems to be a false indicator.
That is all I have tonight.
Disclosures: None.
