This Time It’s Different. Really.
by Richard
One of the most trusted and long lived market prognosticators is the Kiplinger Letter, available by subscription only.
I like the format. Four tightly edited pages, with pertinent charts and bullet points…it’s targeted to busy decision makers who want useful summary data, and not a lot of prose and theory.
The August 2009 letter was a sober reminder of how far we have fallen behind in this savage recession, and how long it will take us to dig out of the hole.
Kiplinger predicts…
1. It will be 2012 before production recovers to the pre-recession level.
This assumes a 2% gain in 2010.
We lost a total of 15% in production over the back to back recession years of 2008/2009, and the math is the same whenever an index takes a hit.
It takes nearly an 18% increase to retrace the heights reached when the decline of 15% took place…because the decline is measured against the higher number, while the recovery is scaled in relation to the recession trough.
2. Incredibly, of the 2 million jobs lost since 2008, only about two-thirds will return by 2013.
Kiplinger correctly attributes this jobless recovery to the globalization and productivity gains from technology that have permanently altered the landscape of labor intensive industries.
Our government was supposedly acting in a compassionate manner, shoveling all the stimulus money into legacy auto makers and banks that made noncollectable loans.
But it will not alter the ultimate outcome.
Social and managerial Darwinism will continue to thin the aged and frail and the clueless from the labor herd, no matter how sentimentally attached we may be to historic patterns of employment and compensation.
3. Another trend is throwing sand in the gears of recovery. Labor must be flexible and mobile to flow into recovering markets.
This will be problematic until balance is restored to the residential real estate market, and job seekers can sell their house to facilitate their ultimate relocation.
This was a unique dynamic in American society…the willingness to pull up roots and pursue opportunities wherever they emerged.
As compared to many families in Europe, who would hand the same house down from generation to generation…an honorable tradition, but not a hallmark of an opportunistic and upwardly mobile population.
The unspoken reason that this time recovery will be slow, painful and halting…
There is no Ronald Reagan waiting in the wings to apply supply side incentives to restore confidence.
Even as we endure the current echo of Jimmy Carter’s presidency.
Malaise, stagflation…and all.
October 31st, 2009 at 5:23 pm
Ronald Reagan? The president who set the foundation of the S&L crisis? Yes, the US sure needs him now to reform our overly robust banking system, but sadly he is dead. Maybe another Republican would be an option, say George Bush: he set the stage for the Lehman collapse and the Madoff debacle by castrating the SEC and other regulatory bodies. He’d be an excellent choice to help weaken further our over-regulated financial system, but sadly he couldn’t run for another term. Ah, but there’s the gorgeous Sarah Palin who supports the true conservatives instead of moderate Republicans. She’d do a wonderful job of helping the US Congress mirror the partisan government of California whose agility and ability to resolve the complex budget issues of that state is a model for governments worldwide. Yes, we really need such gifted leaders.
The view that “Our government was supposedly acting in a compassionate manner, shoveling all the stimulus money into legacy auto makers and banks that made noncollectable loans.” is factually inaccurate. Inaccuracies do not form the foundatio of good advice. First, the government’s motivation was not compassion, it was the prevention of systemic collapse. Second, not all the stimulus money turned into noncollectable loans as evidenced by the fact that some of those loans have already been repaid.
I too expect the recovery to be slow. And I fully expect the real estate recovery to play a critical role.
One of the factors that complicates that recovery is the role of realtors: realtors, in an attempt to sign up listings, promise hapless property owners that they sure can get them the price they want for their houses/land. Those realtors fail to deliver, of course, but it takes time for the property owner to figure it out. Thereby lengthening the time until the housing market bottoms out and the recovery begins. Add the tax rebates by the government to prop up the real estate market, and we are having a repeat of the Japanese zombies: in the case in Japan, it was a zombie economy propped up by subsidies to workers, here it is a zombie economy propped up by real estate whose price is artifically inflated (and therefore does not move) but whose price inflation is fully recognized by banks who have little interest to underwrite mortgages for obscene pricing (further blocking market liquidity). True residential real estate recovery will require thinning the herd of realtors who are clueless, property owners who engage in transactions either without realtors or with experienced ones who set reasonable expectations, and without government interference in the pricing of real estate.