Wall Street seems to be rolling in money again; everyone pats themselves on the back as one year removed from total financial disaster everything is now going to be alright! As Bill Cosby used to say in his schtick, RRrighttt!
It may be less worse (sic) than it used to be, but much trouble still looms in the global economy, and as the center of the economic universe (at least presently) The USA has a long ways to go to be bailing out the rest of the planet.
An overly optimistic view of supply side economics, and it’s inherent flaws in the very real world of high unemployment, will, at some point, give Wall Street a wake up call. The reduced expenses (through attrition and layoffs) that many companies have are showing up in profits, but not in top line revenue growth. And even if sales of products and services increases, the companies will need to rehire workers to keep up with new demand, even with the substantial productivity gains that US companies have enjoyed throughout the last two decades.
This will dampen profit growth, as demand will remain slower than in past recoveries, and the increased cost of labor will offset any real top line revenue growth.
There are at least 2 more years of a slow economy, in this authors view, due to the extreme amount of global debt, both governmental, and personal, that must be unwound, repriced, repaid, or otherwise written off. Add to that the aging of the Baby-Boomers, and their reduced need for more new “things” and you have a formula for slow economic recovery, in spite of rising middle class populations in China and India.
I recently had a discussion with a Phoenix, Arizona business man. He runs a commercial real estate moving company. He is busier than he has been in years! This sounds like a good economic indicator, doesn’t it? But here is what is happening: companies are downsizing, or going out of business, and they need to move to lower cost, smaller spaces, or just put their furniture and office equipment in storage, hoping that they can find a brighter day sometime soon. He said my office full of furniture, a pretty nice L-shaped desk and matching file cabinets, could be bought for$100 today. There is that much used (and quality) office furniture out there, so supply far out-strips demand.
We are preaching caution to our investors. Do not be afraid to lock in 2009 profits (it is NEVER wrong to take a profit), and look for new opportunities to buy stocks and bonds when the yields rise (prices drop). Buy residential real estate and other hard assets below replacement costs, wait for economic recovery to take place, and reap the reward of future inflation when it arrives (it will arrive again).
About the Author:
Roger P. Simard, CFP® is the principal of Genesis Financial Advisors, LLC an Arizona Investment Advisory firm. You can view the firms most recent quarterly portfolio performance at http://www.genfinre.com/Download.html