July 10, 2009

This week started out where last week left off. The economic news, frankly, stinks and the markets are reflecting it. Billions pledged for a stimulus and less than 20% spent so far. Talk about to little to late. Of course there is talk of “green shoots”. The number of people filing for unemployment benefits came down under 600,000 for the first time since the beginning of February. That means that the employment picture is getting worse, but at a slower pace. Mr. Obama said the stimulus bill would keep unemployment at 8%. We will likely hit 10% nationally and much higher in some regions.

The National debt is running wild, wild even compared to Bush. That is a frightful thing and will mean billions of new taxes. Obama may have made the George Bush 41 error. Bush 41 said “watch my lips, no new taxes” and then raised taxes. Probably cost him a second term. Bush 43 figured he’d cut taxes and borrow whatever Congress over spent. He got a second term. Can you see where this is leading. Obama 44 is borrowing and raising taxes.

Retail sales reports are showing that retail sales are significantly depressed but they don’t appear to be getting worse. With unemployment stats where they are, that is actually a positive sign. Remember that our economy is 70% consumer driven. Even a small move, positive or negative, has a meaningful impact on the overall economic picture. Housing it seems will have another round of problems. No real surprise, many 3 year and 5 year arms are now about to reset and while they may be affordable, they may be far enough underwater not to be worth paying. Walk away and rent for a couple of years then buy another house for a lot less. Might even be able to find a rent to own deal at less per month than the mortgage on the old house and be building positive equity in the process. Not that I’m recommending anything here. I’m just suggesting that some people might see that as an option. Others might stay, paying way more for a house than it is now worth rather than dislocate the family and upset schools, church/synagogue/mosque and other family support institutions while hoping that in 10 years the house will have regained its value and they will have substantial equity. Profit, it seems is made on the sale, not on the purchase.

Based on oil at $60 per barrel, the fall price of gasoline will be around $2.25 - $2.35 per gallon. Oil at $60 per barrel indicates no fear of rising demand. This translates into no expectation of economic recovery world wide in the near term. Rising insurance rates and rising taxes will suppress recovery. This is going to be a long drawn out process.

Congress needs a wake up call. Perhaps we should replace a number of them in the up coming 2010 election. There are numskulls on both sides of the aisle who would be excellent candidates for recycling.

If Mr. Obama wants to reach across the aisle and get the best candidate to work on health care reform he should call Mitt Romney. Why? Because Massachusetts has healthcare available to everyone and it was shepherded in under Mr. Romney as Governor. He understands how it works, why it works, what it costs and how to pay for it. He has been a businessman, he has demonstrated managerial expertise and he did it as a Republican Governor with a Democratic legislature (in the home state of Senator John Kerry and Senator Ted Kennedy). Clearly he is adroit at negotiating the important issues across partisan lines.

To sum up this past week, there is no good news except that the news is less bad. As slowing down as you approach a red light signals your intention to stop, the economy may be signaling that it is going to stop declining before much longer. As the stop at a red light is followed by restarting when the light changes to green, we can assume that the economy may soon begin to reverse course. How soon is anybody’s guess, but mine is mid 2010. And when it does it will be slow and tentative, with some false starts.