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Portfolio strategy update: Can’t push a string
David Gottstein
Editor’s note: The following column was written in early January. David Gottstein is with Dynamic Research Group in Anchorage.
The American worker has a tremendous work ethic and capacity to produce. It seems our natural state of being is to move forward. We get up early every day, for five or six of the seven days in a week, and we work practically from dawn until dusk.
The fact that we do so, with the proper incentives in place, has made us the envy of the world in terms of being able to produce not only our quality of life, but the defense of our country, and what we do for others around the world.
Is there no stopping us?
The problem is that we have had it so good for so long, we have worn ourselves out so to speak. With gross misallocations of resources in the telecommunications, internet, and other sectors, along with an over extension of consumer debt and other liquidity factors, we are moving forward with a 50 pound sack on our backs.
The stock market bubble collapse was just a first sign of problems to come. We are in the camp who believes that whatever turnaround in the economy that may be in the offing, which we don’t even totally buy into, will not be sustainable. At least above a 1 percent or so growth rate.
Supply side recovery not likely It is true that we may be headed for an inventory rebuilding correction, and that will help, but a supply side long term recovery is not in the offing as far as we are concerned.
In real estate it is often said to be location, location, location. For the economy it should be jobs, jobs, and more jobs. As long as we are seeing more layoffs than hires, we are certainly still headed in the wrong direction.
We believe that the unemployment rate will head up towards 7 percent before it tops out. Don’t get us wrong. Having 93 percent plus of the workforce working and contributing is still no small feat.
The problem is that the workforce grows every day, while our economy is still contracting.
At best we see a bottoming of the economy, with it going flat for a while. We may even see another leg down once the inventory build-up correction matures.
Our only hope would come in a massive jobs program from the government, which isn’t likely to happen, and even if it does, would likely be too little too late.
Where the analogy with the string comes in is that we need something to pull jobs in to increase incomes that will in turn increase demand. Very low interest rates haven’t and won’t do the trick to the string.
And we are on our own. Not China, Japan, Europe, or Latin America is likely to start importing American products to any large degree anytime soon. We are even still exporting jobs overseas to places like China.
America will recover because of the long term fundamental economic balances in place for the long term.
But later than many think.
In the short term, we still have to work out our excesses. Sure consumer confidence is up, but it still doesn’t indicate a strong economy in our expectation set. Just the end of bad times.
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