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Well Friends, it looks like the venerable American economy is starting to recover. Transportation companies are reporting more activity which means someone is shipping something someplace. Consumer debt, yeah credit cards and mortgage debt is once again growing. It grew each of the last three months which suggests either a lot of people are starting to feel more secure OR they were bound and determined to have a great holiday and when the bills come in January, Katie bar the doors…bankruptcy. I don’t know which it is but the next 6 to 8 weeks should help make that clear.
In the interim, Gold is down $37.50 for the first 7 days of the new year. Does that mean that Gold’s great run up is done? I don’t think so. I think there is some profit taking after a 25% plus run up in 2010. I think that there is some real concern about the worlds FIAT currencies, The British Pound, The Euro and the US Dollar as well as lesser known currencies. The concern about those currencies is inflation. Will the printers of these currencies reduce their debt and become fiscally responsible or will they simply print more currency to pay their bills. Until that doubt is removed I believe that Gold remains the inflation hedge of choice.
Oil is another issue. Black gold. As the recession abates worldwide and jobs appear, no matter how slowly, consumer confidence will grow and consumption will increase. This increased consumption will require energy to produce and ship to market. That will increase the demand for oil. As demand increases more quickly than the ability to produce and distribute that oil, we will see prices rise and rise rapidly as countries stockpile to assure their needs are met in the event of any interruption in the marketplace from political unrest or simply Mother Nature. As oil prices rise, gasoline, kerosene (Jet Fuel) heating oil (Diesel) and all the other petrochemicals will rise as well. We are beginning to see evidence of that at the pump. Locally the spike will come with the beginning of driving season (Vacation) in the late spring. Gasoline could easily reach $4 per gallon over the summer.
That will pinch the economic recovery reducing its vigor. Still, the recovery will continue slowly, jobs will appear slowly and energy will settle at its new level.
Politically it is a game of trying to claim credit for the small gains and cast blame for the slowness of the recovery. Neither party has the inside track here. They are both equally culpable for gains and the slowness of them. It took decades to get where we are. G.W. Bush didn’t do this alone. Barack Obama didn’t do this alone. Even Nancy Pelosi didn’t do this alone. Every administration back to Nixon had a hand in this mess. We have been education our young people for jobs that no longer exist. Kind of like planning and building a highway that is always too small for the traffic that wants to use it the day it is completed. We have been trying to preach a lifestyle that is not in step with the largest population groups. We will find it difficult to do business successfully with these people. We have created an entitlement mentality (here and in Europe) that we can’t sustain. Now we have come to the point where we are asked to fix this in two, four or even eight years. Not going to happen. It will take a long time, maybe 20 or 30 years to adjust our thinking and produce young people who have the right skills for the new world we have created through technology and social advancement. But first we have to determine what skills are needed. That is hard to do. Envisioning 4G phones just 10 years ago was not possible for most of us. How can we teach what we can’t envision? A fair and valid question I think. Business leaders like Bill Gates, Steven Jobs, and all the others who have invented hardware and software that has dramatically changed our lives need to take a little time to sit down with educators and say here is where the world is going and these are the skills that will be needed. Then it is up to our local and state governments to adjust quickly so that the academic offerings are in step with what is likely to be needed when the child completes his/her education. Our social entities have to help kids understand that while grandparents and even parents career paths worked fine for them, they may not be workable in the future. In my grandparents day a good job was a secretary or a switch board operator for the phone company. Both jobs, which have for intents and purposes, disappeared from the scene today. Great jobs then, non-existent today. How many more jobs can we name that were considered good jobs in the 1970’s and 1980’s no longer exist? Yet our schools still offer a similar curriculum. Those that still offer foreign languages are still offering languages that are no longer relevant in the global business world. English and Chinese are the two languages spoken by most of the people living on this planet (sorry France). Spanish may be popular but it is not one of the most important business languages of the world.
My prediction has been that job recovery, defined as an unemployment level of 5% will not be reached before 2017, if ever. The new jobs number this month was stronger than expected but didn’t absorb the growth in the workforce let alone reduce unemployment. The official number for unemployment went down but even the government admits that it is probably due to people who simply quit looking for jobs. They are still unemployed, we just can’t find them to count them. They have dropped of the radar so to speak. The real unemployment rate (which no one knows but some estimate is probably around 17%) is still rising, albeit much more slowly than it was a year ago. To make a real reduction in unemployment no matter which number you choose to believe is about 125,000 per month net of layoffs of private and/or public workers. If we could achieve and sustain this level of job growth, we could reach 5% unemployment in 4.5 years or by 2015. Each month we fail to create 125,000 jobs is one month longer to reach “full employment”. Of course that is based on national averages etc. Locally those numbers are either higher or lower and full employment is nearer or farther away.
Housing, my last item for the day, is still bumping along. Values have not yet stopped falling and an upturn in mortgage rates has caused the refinance market to slow a bit. Perhaps that refi-flurry during the month of October and continuing into November may have been what increased consumer debt and supported the holiday retail sales. Until housing values stabilize and the inventory of unsold new and existing homes is reduced, no one is going to be launching large developments. That employment engine is down for the foreseeable future. Maybe 2012 or 2013 we may see some spool up in the “destination” areas but the country as a whole will be trailing with some hard hit areas like Detroit taking a really long time to recover.
Keep watch, it is an interesting time in which we live.
Monday, January 10, 2011
Sunday, January 2, 2011
Happy New Year!!
The old year is gone and 2011 is on the job. His will be a tough life. The world is in distress. Europe is struggling to keep its common currency afloat and old nationalistic feelings are creeping up. Germany is the strongest economy and the social fabric is the most pragmatic. Greece, Spain, Ireland are already in trouble, having borrowed way more than they can sustain. Portugal, Italy and others are also at risk. Germany once dominated much of Europe militarily and now it is becoming dominant economically. Perhaps there is something in the genes.
The United States, too, has borrowed much more than it can sustain in the long term. We can support the debt for awhile but ultimately we must get our house in order. We are no longer completely impervious to the concerns of the world. We are rapidly losing the distance between ourselves as the giant killers and the rest of the world. China is rapidly closing the gap. Russia is trying as well. The quiet one, India, is growing economically and is about as large as China when it comes to population. It too is growing at an annual rate well above the ‘developed world’ and is closing the economic gap.
These growth rates in Chindia, the new buzz word, will propel the demand for goods and services for the next decade. Together China and India (Chindia) contain about 33% of the world’s population, where the USA is only about 4.5%. As they grow and more want cars, refrigerators, washing machines and all the rest of life’s good things (not to mention the energy it takes to make them work) the demand for these goods and services will grow at an unprecedented rate.
Opportunity will continue to knock in these places. The USA will recover but by the time it does, the level of caring in the business world may have diminished significantly. The need for strong exports to the USA will be replaced by domestic demand in Chindia. This will make us less important to them and us ever more dependent on them. The net result is higher prices for imports in the USA. To many of us, that will feel like inflation unless the dollars strengthens sufficiently to offset the change. Unless we get spending under control, we will become less vital and critical to the world and more marginalized in world politics. Europe could find itself again dominated by Germany through its own decisions. Remember a United EuroZone is similar to the USA in population. Even together, we only one fourth as large as Chindia. By the way, Indonesia is only a little behind the USA and the EuroZone in population. If you look to all of Asia, we are out numbered by more than five to one.
Guess where business opportunity will lie between now and 2050? Where will the demand for Infrastructure, housing and all that goes with it, cars, clothes and more be?
It is time for us to be teaching our children Chinese; language, customs and traditions, so that they better understand the wants and needs of the largest customer segment in the world. Oh, India speaks English as an official language already which makes them easier. But we need to learn traditions and customs so that we better understand the other largest customer segment.
At home the new year means a new congress that must take the deficit seriously. They need to take a hard look at Obama Care and prune the parts that over reach to make the overall program healthy and sustainable. It may take more than one year for some challenges to work their way through the court system. Legislative modification could remove the premise for the challenge if it is handled properly. I’m not holding my breath.
We are two years out from another presidential election. Obama and the Dem’s will be posturing for that, while the Republicans are looking for a viable candidate. I just hope that doesn’t stop us from moving forward on issues that are important to the nation and our future.
The old year is gone and 2011 is on the job. His will be a tough life. The world is in distress. Europe is struggling to keep its common currency afloat and old nationalistic feelings are creeping up. Germany is the strongest economy and the social fabric is the most pragmatic. Greece, Spain, Ireland are already in trouble, having borrowed way more than they can sustain. Portugal, Italy and others are also at risk. Germany once dominated much of Europe militarily and now it is becoming dominant economically. Perhaps there is something in the genes.
The United States, too, has borrowed much more than it can sustain in the long term. We can support the debt for awhile but ultimately we must get our house in order. We are no longer completely impervious to the concerns of the world. We are rapidly losing the distance between ourselves as the giant killers and the rest of the world. China is rapidly closing the gap. Russia is trying as well. The quiet one, India, is growing economically and is about as large as China when it comes to population. It too is growing at an annual rate well above the ‘developed world’ and is closing the economic gap.
These growth rates in Chindia, the new buzz word, will propel the demand for goods and services for the next decade. Together China and India (Chindia) contain about 33% of the world’s population, where the USA is only about 4.5%. As they grow and more want cars, refrigerators, washing machines and all the rest of life’s good things (not to mention the energy it takes to make them work) the demand for these goods and services will grow at an unprecedented rate.
Opportunity will continue to knock in these places. The USA will recover but by the time it does, the level of caring in the business world may have diminished significantly. The need for strong exports to the USA will be replaced by domestic demand in Chindia. This will make us less important to them and us ever more dependent on them. The net result is higher prices for imports in the USA. To many of us, that will feel like inflation unless the dollars strengthens sufficiently to offset the change. Unless we get spending under control, we will become less vital and critical to the world and more marginalized in world politics. Europe could find itself again dominated by Germany through its own decisions. Remember a United EuroZone is similar to the USA in population. Even together, we only one fourth as large as Chindia. By the way, Indonesia is only a little behind the USA and the EuroZone in population. If you look to all of Asia, we are out numbered by more than five to one.
Guess where business opportunity will lie between now and 2050? Where will the demand for Infrastructure, housing and all that goes with it, cars, clothes and more be?
It is time for us to be teaching our children Chinese; language, customs and traditions, so that they better understand the wants and needs of the largest customer segment in the world. Oh, India speaks English as an official language already which makes them easier. But we need to learn traditions and customs so that we better understand the other largest customer segment.
At home the new year means a new congress that must take the deficit seriously. They need to take a hard look at Obama Care and prune the parts that over reach to make the overall program healthy and sustainable. It may take more than one year for some challenges to work their way through the court system. Legislative modification could remove the premise for the challenge if it is handled properly. I’m not holding my breath.
We are two years out from another presidential election. Obama and the Dem’s will be posturing for that, while the Republicans are looking for a viable candidate. I just hope that doesn’t stop us from moving forward on issues that are important to the nation and our future.
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