From film to finance, the internet offers a beacon of innovation for America’s economic future...while the high tech manufacturing sector fights to survive the onslaught of new taxes, America struggles to gain its footing in an uncertain and frothy recovery.
Is the recovery for real? That is the biggest question of the year for many people. Looking back on 2009, it was quite a year. It did not offer up as much historic volatility in the markets that 2008 did, but behind the scenes the monetary policy of the country was something of an epic story. Needless to say it appears that the Bernanke School of Injection has been beneficial for Wall Street. The problems are how long will it be before Main Street benefits, and will Bernanke be able to pull back on monetary support for the system via low interest rates and TARP programs without the recovering economy triggering inflation. How long before the Main Street recovery catches up with the Wall Street rebound? Or will the rebound turn out to be just a cyclical rally in a larger down cycle like some analyst say, leaving the catch up of the real economy lost in a quagmire of fallout from a vanishing fortune in securities. The other three problems that are much bigger and really more important in the long run: will the politicians do anything about the small business credit availability, the debt and energy problems?
Bernanke faces an unprecedented challenge never before undertaken in history. The balancing act he must pull off in the next year or so is very complicated to explain. It will also be harder for him to accomplish than most of us realize.
From what I understand his challenge is to withdraw the TARP funds, thereby reducing liquidity or the amount of money in the system, and keep interest rates at a level that keeps inflation in check and also does not strangle money supply at the same time.
Considering these two facts, he still has quite a heavy arsenal at his disposal. But how he uses them will be completely dependant on the economic data that he gets. Assume for a minute that there will be no more big bank problems and the TARP funds will not be needed anymore, so he will be able to continue to pull back lending. This will reduce money supply. Then assume for another minute the economy does heat up and he has to raise rates to keep inflation at bay. This would be really something and could mean the dollar would be in the lime light once again as the money supply shrinks and it will bring the dollar back into favor. The long term threat to this scenario and the strength of the dollar is the securitization of assets and the structural imbalances between the eastern and western economies and of course the energy policy and the debt. An article that fellow Twitter user Ancient_Warrior found and posted explains much of these problems and others very well.But I think these problems are still at least five years from becoming the end of the world lights out problems that the gold bugs and naysayers believe they are. Yes oil and gold are going very high. But it is going to take another ten years of negligence from the politicians and the voters who put them there before the gold bugs get the 5k an ounce in gold. In short, there is still time to fix this mess.
The stocks are telling us that as well: on a technical level the S&P 500 has retraced 50% from the March low. I continue to believe this level will be a key decider of the recovery. If we get above the 1224 level and hold, it will be very bullish and indicate the recovery will be strong within six months from the point the S&P 500 does decide to make the 1224 area support on a technical level. But really we need to wait and see how January goes to see how the rest of 2010 will go. Analysts are expecting some selling in stocks in the next ninety days, and I tend to agree with this. Also gold has taken a good fall from the highs, and hopefully indicates a period of consolidation is underway. Gold is a great buy at 1000 now. We need to see how it reacts to the former resistance at 1070-1100 to get a better idea of what’s next. So it will be February before we can see how the GDP, NFP Housing and retail data are in Jan to really know more. Anyone saying that stocks will tank in the first quarter or this or that just can’t say that for sure without data to support it. If the economy were to tank, then gold will have to go back to down quite a bit. Just remember, as long as the consensus is that the data coming in is positive for the economy; gold will keep going up a lot.
How long it will take for the recovery to come to Main Street? It all comes down to jobs. When will new jobs be created by this economy?
The outlook is not good sadly; half of the much touted US GDP growth in the third quarter was spurred by the stimulus or the Recovery Act. The drop in unemployment last month was weak, and not a surprise considering the season. Were in the longest period of unemployment ever, that is to say, on average people have been out of work and looking for a job for a longer period o f time than in any other time since they started keeping those kinds of records from what I understand. Also the recent retail data was actually down from last year in some areas excluding food, and energy, like clothes for example. The housing data touted by the drive-by media as recovering, has others pointing like JimBurness who posted an article that points to dire facts that don’t look so rosy. One fact that is very troubling is that one quarter of home owners are in foreclosure, and seven percent are thirty days behind on their monthly payment. Another big problem in housing is that higher end homes are not selling, and most of the sales are in the foreclosure market and lower end homes. So that means the inventory is a long way from being tightened. On a more troubling note, it also means that the people are not moving up from the mid sized homes to the larger ones. This means that the middle class are not moving up. Not surprising to most everyone out there. The data being watched by the experts for the recovery is frothy to say the least.
The two bright spots in the employment arena where I believe we will see the most opportunity and the fuel to help lay a good foundation for jobs are high tech manufacturing, and the internet continuing to reshape industries as we have known them. Of course it goes without saying, but I must repeat the mantra….the politicians have to develop a jobs creating energy policy and deal with the debt also or we face the gold bug scenario of gloom and doom.
The high tech jobs are here, though the work force is not educated enough for them, and the sector has vultures circling in the form of higher taxes.
On the other side of the spectrum the internet continues literally turning industries inside out and has everything from film to finance in turmoil and turned upside down on their heads.
Two examples I can think of on the internet are StockTwits and FansofFilm.
On the financial side Howard Lindzon has created a platform that allows Twitter users to post their Twitter updates into a financial stream that aggregates Twitter updates that are tagged with the “$” symbol for financial related updates. I once saw an update that compared the StockTwits stream with Barrons. My personal opinion is that the StockTwits stream and its blog network have more financial information from more outstanding sources, content (both premium and free) and individuals in one place than I would have ever thought possible even six to nine months ago.
On the film side I am very proud of my brother Michael Palombo and the work he has accomplished for the film industry and most importantly its artists, where he has blown the doors off of traditional four wall distribution, by giving film artist the opportunity to distribute and market their films with the same technology that the giant networks like FOX and NBC use on their sites for video content, an amazing and as yet virtually untapped technology called VOD (Video On Demand). This technology is just now being used by professionals to provide videos on demand to their clients for educational purposes or just plain entertainment as in the case of the major networks. In the case of FansofFilm, the technology is being taken a step further and being used to help artist and producers directly.
Michael Palombo and Howard Lindzon are one of many examples of how folks on the internet are continuing to take the existing technology as they have done for all time, and harnessing it to provide consumers with products they want and more importantly allows them to choose their consumption level in ways that would have never occurred to most of us and still many more can hardly wrap their minds around yet. Just like Google, E-Bay, Amazon and so many others have done over the years.
Google is the ten ton gorilla in this arena. Most folks still don’t get exactly what Google really means and how much it is actually worth.
Though I don’t agree with much of what Richard Florida says in his March 2009 article from the “The Atlantic “How the Crash Will Reshape America”; I do agree with the idea that we face a fundamental shift in demographics and the economy. However, the recession has merely accelerated it; the shift has been underway since the internet came of age in the late nineties and before that with the industrial revolution, and cheap energy has always been the backbone. The internet and manufacturing require lots of energy, so energy must remain cheap for any meaningful economy to manifest. I also think petro can’t be too expensive, as much of the world industry still needs it for basics such as plastic. I also think that folks move less now precisely because of the internet and the new economy allows them to work remotely in more cases now than ever before in the past. It is the bad energy policy leading to high costs for fuel and food that hurt most, and the politics of installing high speed internet. I would say getting internet to the rural areas is about as important as getting the railway built was and has just as big of an impact on a community when it does arrive. The difference between the rail and the net, is in the case of the rail you needed one rail going through a state to satisfy the requirements of transport, and that lead to demographic advantages materializing in the form of suburban and metropolitan development; in the case of the net the infrastructure for the web is possible to bring everywhere and not favor a particular region unless unusually remote. It is not the distance from the city so much that sets back my productivity as much as these infrastructure and energy issues that should not even exist in the first place if free enterprise and the free flow of information were a priority.
So in a nutshell, I guess what I am saying is there is hope, and the future is bright for jobs. It will not be easy, and the biggest threats are economic and energy policy. The hardest thing is the jobs are many months and depending on how things go next year maybe years away. It is truly sad that the Administration has gone on record as saying jobs will be coming back by spring, they don’t have a great record at predicting these kinds of things. We need to do four simple things right away to spark this recovery into producing jobs: first, a jobs creating energy policy, second, get the rules of the game straight for small business, third, draw down the debt and fourth, promote what manufacturing we have with tax credits and less regulation that is actually enforced, and can’t be bought off by lobbies.
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Below is a list of some key point made in this article and links to some of the articles I have read and/or used in this article.
• Securitization of Assets http://bit.ly/6Oj8FX (http://twitter.com/Ancient_Warrior)
• Longest period of unemployed
• Seasonal NFP
• Half of GDP growth was stimulus
• Private sector growth/credit
• Recent recovery data is frothy, ie some sectors (if you exclude autos, food for example) of retail sales were actually down from last year.
• The housing sales are new home buyers and foreclosure market, higher end homes not selling
• The new economy(web 2.0 and high tech manufact)
• Structural imbalances
• Economic Outlook for 2009 http://bit.ly/3aA9Ci
• http://twitter.com/JimBurness What housing recovery? The Most Important Housing Chart Shows Things Are Still Getting Worse http://bit.ly/1NODCj
• How the Crash Will Reshape America http://www.theatlantic.com/doc/200903/meltdown-geography
• http://www.milkeninstitute.org/newsroom/newsroom.taf?cat=press&function=detail&level1=new&ID=161 California losing manufacturing jobs, including high-tech, faster than nation as a whole, according to Milken Institute
• Virginia Business - Opinion: Are you ready for the aftershock? http://bit.ly/4E302Q