2009Sep13 Week in Review

2009Sep13 Week in Review
 
 
 
This week's radio broadcast of the Don Creech Show has been posted to www.DonCreech.com. Don and Perry discussed examples of compromised care situations under government run healthcare systems and implications for real estate owners in light of continuing bank defaults.
 
September 13, 2009
WEEK IN REVIEW:
 
Consumer sentiment has shown positive signs lately with analysts implying there is a correlation to a more positive economic future. However, there is no correlation between the University of Michigan’s consumer sentiment survey and actual consumer spending. It seems to us that the uptick is more likely indicative of consumers adjusting to a new “normal” in their cash flow and constraints on their ability to spend.
 
Government unemployment data is reported in several different bands. The more positive number (U3) turned upward again and is just below the 10% that President Obama has told us to expect rather than the 8% he projected when asking for legislation. The complete number (U6) which tracks unemployed no longer eligible for benefits but still desiring work is now above 16% of our nation’s workforce.  As in the Depression, a constantly high level of unemployment will cause continuing uncertainty among those who have retained their jobs, especially if they are under employed and not utilizing their full skill and talent.
 
“The end of the recession” that the President has announced is not going to be one of significant job growth. The President’s stimulus plan retains more than 80% of the authorized expenditures. The retained funds are not scheduled to be released until next year when the mid-term election cycle begins. (Imagine that)!
 
President-elect Obama said in November 2008 there was consensus among conservative and liberal economists that “we need a big stimulus package that will jolt the economy back into shape” and that is what most Americans believed they were supporting last year in the midst of the financial crisis.
 
At the end of March, Vice President Biden told a gathering in Chile the recently passed Recovery Act “provides a necessary jolt to our economy to implement what we refer to as ’shovel-ready projects.” And as late as June, he was telling business leaders in New York the stimulus package was “an initial big jolt to give the economy a real head start.” [1]
 
Vice President Biden explained in a New York Times op-ed that two thirds of the stimulus goes to states to pay for extending unemployment benefits, health care costs, Medicaid, welfare payments and other state programs running deficits. Apparently, it is up to us to redefine this redistribution of wealth as “shovel ready” work that will “jolt our economy” back to full employment.
 
Politicians should be reminded that when you give a man a fish, he eats today. When you teach him how to fish, he can eat the rest of his life. Extending unemployment is politically expedient but actually creating jobs for people to earn an on-going living would have been more productive use of our borrowed resources.
 
The current market advance seems to assume that the promised jobs will begin arriving by year’s end restoring consumer spending. The improving profit corporate profit picture will shift from cost cutting to real sales.
 
We do expect to see better profit reports of year over year results. However, we will be surprised to see it occurring from a major uptick in consumption. A year ago, sales had been flushed down the proverbial toilet. There may be some water in the bowl this year but the tank is far from full. Sustainability is the big unknown for retailers. Return-to-school sales were not celebratory. Angst describes the coming holiday sales season.
 
Notwithstanding all of this, the market has clearly executed a strong positive trend in the midst of a secular bear market. These conditions can persist for some time. We are faced with September and October where, more often than not, significant sell-offs have occurred during the last century. Investment risks could be higher but certainly should not be viewed as low.