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Portfolio strategy update
Going nowhere fast David Gottstein
Editor’s note: The following column was compiled in early August. David Gottstein is with Dynamic Research Group in Anchorage. We are not in the camp of those who are predicting a new growth cycle in the foreseeable future. Those who have are now changing their tune and pushing growth predictions out to the first or second quarter of next year, and of course, those who are paid to do so are saying that now is the time to buy in order to take advantage.
It is true that consumer spending has remained more robust than the climate would suggest, including the important housing sector, and there is talk of a summer rally. However, talk is cheap.
We have great confidence in the American economic machine. It has amazing capacity. However, it is also prone to excess, as has been witnessed over the last decade. We are now going to suffer from and have to digest our past excesses before we can move on, and that is only if the rest of the world cooperates.
The continued fallout from the tech sector, continued bad news being reported on the corporate earnings front, frequent announcements of layoffs and corporate downsizing, falling employment and consumer confidence, weak auto sales, federal budget projections turning negative from positive, no end in sight in Japan, and Europe sputtering along at best. It certainly does not sound like a bottom in economic activity just yet.
Even if it is, that does not necessarily mean that after a bottom that the only direction to move is up. Sideways for quite some time, is also a possibility.
We agree that Bush and Greenspan both want the economy to grow. But, with the Federal Reserve having shot most of its ammunition, and the Bush administration not prone to fiscal stimulus programs, it is going to be left up to the private sector to get things rolling again.
With consumer debt still high, and current home refinancing needing to provide an extra push in the consumer spending numbers, we doubt whether it is sustainable in the face of falling incomes and employment. At best, we see the federal government having limited success in keeping the economy from going into a true tailspin with such things as tax rebates, lax monetary policies and other fiscal stimuli.
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