Monday, March 16, 2009

And The Beat Goes On

It is at times like these that we need to be reminded of what Alexander Pope once wrote:"Hope springs eternal in the human breast". As difficult as it might be we need to know that adversity carries within it the seeds of an equal or greater benefit. It all depends on how we react to the challenges that are facing us.

Unfortunately most observers think that the current economic crisis has not hit bottom yet. Whether it is the stock market or whether it is the real economy the daily deluge of news point to some more rough times ahead.

What does the future hold?
It is difficult to see any uplifting indicators besides the "leak" that both Citi and Bank of America have had two profitable months so far in2009 , on an operating basis. Besides that our only hope is that the stimulus will kick in within the next few months and that its effects will be sustainable. But realism demands that we take a look at the real financial and macro economic indicators. Once we do that then what do we find:

(1) The over 600,000 monthly job loses will not come to a sudden halt. They would continue for some time to come. Unemployment rate is already at 8.1%

(2) The factory capacity utilization for the month of February was at a historical low of 67.4%. This simply means that we have 1/3 of our factories mothballed.

(3)Home prices have fallen a lot so far but they have not hit bottom yet. That carries negative connotations for both consumers and the balance sheets of the large banks.

(4) Many on Wall Street are raising the argument that the current Price to Earnings ratio has not fallen as much as it usually does in major crisis , such as the 1981 recession or obviously the great Depression. Is there a 500 Dow Jones Industrial average in our future?

(5) And last but not least China is already voicing its serious concerns about the value of the dollar. A loss of confidence in the greenback will be disastrous.


Anonymous said...

The following is interesting and also China should be nervous about the dollar because half of our production takes place in their country... so when people say China should be the next super power, that does not necessarily prove true.China doesn't have its own market it is based off the production for the markets for other countries.

Yes, the drop in house prices and loss of jobs is frightening because then the real estate business goes down and property starts to lose value which makes for closures and cheap homes targets for big developers and home builders. This gives an advantage to the wealthy and a fall back to the middle class.A society can not prevail without a middle class. They are the biggest spenders. But when the middle class puts a lock down on the spending we lose a lot of economical stride.

Mary B. Dixon said...

I am really nervous about graduating in a year. What am I going to do about a job? The decrease in jobs monthly is unbelievable. China should be worried.. I am worried about the strength our currency. Where is the money coming from for the stimulus package? All I see is inflation and the dollars value decreasing in the future, but I really hope I am proved wrong in the coming months.

Amanda McQueen 106 said...

Once again Mary and I share the same concern. What will happen when we the future go into the real world? What world are we going into? Everyday I think very hard about the major I have chose and will I be able to find a job and make money. Our country is on its knees and everybody is worried, and if their not worried they should be. Does anyone think about how we (our nation) will pay back all of this money? Where is the money coming from? After everything has final settled down will the U.S. dollar be worth anything? Things are really bad and I can only hope that by the time I am ready to leave Pace in fall of 2010 things will be on the way to getting better.

Anonymous said...

Sara Basheer :

Honestly, everything that is happening in the economy today just disheartens me. Its hard to believe that I am in a field of study that maybe tomorrow doesn't have much of a future. I'm hoping that things turn around sooner than later because the stress that these hard economic times are creating are becoming evident in everyone. The company that my father has worked for for the past 25 years is moving to South Carolina and its hard to make a decision about what to do. Even though he is asked to go with them, how can he leave everything that he has built here in NY behind?

Anonymous said...

The fear of the future is real in every ones mind even with my graduation within the next two years i encase the same fear one might have graduating now. I think we all have to follow the stock market and hope that the economy will follow it and not let the economy determine the stock market. we shall see but all in all its a scary time for every one
-Benjamin Williams

Anonymous said...

It is a hard time. Maybe this is a chance for those interested in the field to capitalize on this opportunity and pursue other areas of interest. The economy will work itself out, eventually. There are things right now that are happening beyond our control. I feel as if the ball keeps getting passed on, and one day it will have to stop, and the current officials in place will have to make due. War may not seem to answer everyones questions, but it does answer some peoples'. All we can do is sit back, pursue our goals, and stop complaining about whats bad in this country. If you don't like what's going on, you have the freedom to leave. That is the beauty of the United States of America. We are not prisoners. These hards times should just provide a reason to succeed. There is money to be made and there are still people willing to pay. This process will never end. I don't care how bad it gets. Wake up.

-Andrew Neiderman

Anonymous said...

I feel that the sluggishness of the recovery of the economy is mostly due to two factors. First of all is the unresponsiveness of the price to earnings ratio. As the article says the ratio has not fallen nearly as much as it seems that it should have. This means that companies are attempting to ride out the recession unaffected. Rather than drop prices and in so doing improve consumers' ability to afford to make purchases with their decreased incomes, companies are waiting for somebody else to do something to motivate buyers. The second thing to which I attribute the slow improvement of the economy is the insulation between the people being looked after by companies and those in trouble. The majority of the areas in which companies have taken steps to compensate for the effects of the recession are almost irrelevant to those of us most affected by the economic downturn. For example there has been a huge emphasis on savings on big ticket items such as televisions and cars despite the fact that in when people are struggling economically priorities shift drastically away from such luxuries. As soon as those in positions of power over prices realize that consumers in this economy need cheap food and other necessities rather than luxuries, we will be more able to take advantage of any positive trends in the economy.
-Brian Keegan

Khari Linton said...

The number of monthly job losses is really horrific for my eyes to see. That number is not going to come to a sudden halt, but hopefully the number will start to decrease drastically and then the percentage of unemployment will also start to diminish overtime. We need citizens in the workforce to help our economy survive and not plunder to the ground and prove China's predictions to be true. But like all economies, they do not stay steady forever. One must fail to succeed, so i have a lot of confidence that our economy will become much better than it has ever been. We need to keep working to keep the economy from hitting rock bottom and rise above the sky :)

James Talamo said...

I also agree that this steady decrease in jobs has become a little scary. More and more businesses seem to be closing, cutting down or even moving out of the country. I think China should be as nervous as well, since they rely mostly on our spending. With these times it seems that the middle class is slowing dying which will only leave extremities of the rich and poor.

James Talamo said...

I also agree that this steady decrease in jobs has become a little scary. More and more businesses seem to be closing, cutting down or even moving out of the country. I think China should be as nervous as well, since they rely mostly on our spending. With these times it seems that the middle class is slowing dying which will only leave extremities of the rich and poor.