From the title of the post, you either think this will be about the NFL lockout. Well, it's not. It's about "extend and pretend," "kick-the-can" and the next bubble burst.
But, before I get to that, some followers of my blog ask me if I'm still doing it? I'll admit, in the past four months I have been in hibernation and stepped out briefly to realize there will be six more weeks of winter.
I'm stepping out today, President's Day, because I'm not working today, which allows me time to write a frivolous blog entry (even though I do need to keep working on my book as well), and I just need to put things in perspective for myself and others. I don't get paid for this and I'm working on a book, so this blog is not my top priority. That said, a few things to point out--most importantly, we're on borrowed time.
First, we have a divisive Congress that can't agree on the best place to get their shirts cleaned much less diving into a trillion-plus deficit and slashing social security, medicare and defense. Don't expect any budget slashing this year, a likely threat to shutdown the Federal government indefinitely, which will not happen because Repulicans don't want a repeat of 1995, and don't expect the Federal Reserve to pull back on Quantitative Easing measures, part deux.
Make no mistake, this economy is run by the Federal Reserve, for the Federal Reserve, and in Ben Bernanke we need to trust. All I can say is, if we have to trust a guy who says the Fed prints money in one 60 Minutes interview with Scott Pelley and then says it does not print money in another interview with the same Scott Pelley on the same program only a couple of years later, then we might want to question the character of people we trust in this world.
GDP is up, we're not in recession, because the Federal Reserve provides the capital to produce inventories and general growth. Here's the problem--unemployment shows no signs of abating. That means either more consumer debt, less consumer spending or both.
Housing prices continue to fall in most areas, meaning banks remain insolvent.
Commercial real estate values are stable but, depending on particular market economies, housing foreclosures and shadow inventories, as well as Borders' recent bankruptcy, that sector of the economy has a long way toward recovery. Office will not likely expand until unemployment declines, retail will not recover until consumers begin to really spend again and housing regains its footing, only business travelers are staying at hotels on a normalized basis and apartment properties are showing momentum.
Still, refinance activity of $1 trillion in CRE within the next two years remains a challenge without all the financial markets--banks, commercial mortgage-backed securities and pension funds running at full steam.
State and local governments continue to slash budgets, going after teacher pension funds in Wisconsin, with other states likely to follow. Peaceful protests in Wisconsin could sprawl throughout the country this year. But, either way, those budgets need cutting and that means higher unemployment numbers if private business does not higher.
The stock market value, now in the low 12,000 range, is just ridiculous. Remember the Internet bubble and the "New Economy?" Remember 14,000-plus when the economy overheated on housing-wealth from investment banker to borrower? Now, 12,000-plus on companies profiting from layoffs, budget cuts, debt reductions and no hiring. No extra employees, no extra benefit costs, no extra overhead and telecommuting becomes more popular for consultants and part-time workers. So, are these companies really valued properly? How long will it last?
Outside of the U.S., Egyptian protests overturned a dictator who kept peace between Egypt and Israel and kept trade open with its partners. But, with any global economic upheaval, the people become unhappy with the current regime and want change. Facebook helped spur it on and now the middle east has a series of protests for democracy. Greater uncertainty in the Middle East does not favor markets, democracy or no democracy.
Eastern Asia, China, India and other developing nations are beginning to see inflation rearing its ugly head, which would raise interest rates and increase import costs for other nations, including the United States. Meanwhile, a falling dollar could improve U.S. exports, if the U.S. exported anything. Mostly, they outsource manufacturing for cheaper labor and higher profits.
Once again, there is no solution to the job market-problem in this country.
In Europe, Portugal appears likely to be the next "bail-out nation," following Greece, Ireland and soon-to-be Spain with its 20 percent-plus unemployment level. When does the Euro face collapse? Or, will Germany fall in propping up the Euro and bailing out its fellow EU countries?
CRE worsens in the United Kingdom and, as Paul McCartney once sang, "the pound is falling."
If the U.S. economy was running on its own with all this taking place in the world, I would say we have a long recovery, but we will recover. It still runs on an engine of Fed dollars filtering through capital markets and it will be just a matter of time until the music stops. Who will have a chair to sit on and who will be left standing at the end of this charade.
There will be more bank failures as the country, and the world, continues to deleverage. And, there will be losers out there. My bet for the losers includes the middle class and poor, who were never given a fair chance for opportunity in this recession. The federal government's call on this extraordinarily deep recession was to favor the affluent, the too-big-to-fail banks, Wall Street and special interests with deep pockets. The money, from their way of thinking, I suppose, would "trickle-down" to middle-class and poor folk in terms of jobs and increasing values.
Think again. Trickle-down economics has not worked for the past 30 years, and it will not work this time. All it does is increase deficits, make wealthy people wealthier and poor people poorer.
It also creates booms--and busts. The only question now is--when does the next bust take place? I continue to go with Fall 2011, but I would not be surprised if the big crash, which puts us into a double-dip recession, occurs in November or December 2012, just after the next Presidential election. The only question is whether Bernanke, Tim Geithner and crew can hold off the economic pressures from outside the country as well as those creeping up domestically.
Don't wait too soon. We'll likely know by this summer.
Robert Michaels
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