What's Next? Economy Drifting Downward

The new president and his cabinet may have a daunting task ahead. The estimates of corporate income for next year are being adjusted downward. Cisco believes orders will be significantly less than previously thought. GM is rumored to be preparing to go to Washington with the message that they will go bankrupt if not bailed out. Major insurers, like Hartford, Aetna, Conn General are all under pressure because of asset revaluations. Corporate bonds are being discounted significantly to par - a sign of uncertainty about the future.

While I certainly am optimistic about where the United States will be 8-10 years from now, I believe that the next few years will be very very difficult. If you disagree I would welcome your views. Show me some signs of strength or a positive plan to solve the problems. Even the new president said in his speech on Tuesday night that this may take past his first term to achieve. Do not expect easy or fast solutions.

I am trying to find a way to navigate this mess - a path of optimism for the future that can be followed with confidence. I am not finding it. The coming recession appears to be a deep one. Commodity prices certainly seem to be attractive, but to dive into the mining companies, the fertilizer companies and the transportation companies is to believe that the future bad news has already been discounted into the market. I am not sure that is the case. I assumed, for example, that CISCO and Johnson and Johnson and Procter and Gamble, to name a few, had bottomed out about 10% ago. The market continues to take these stocks down further because the buyers are just not coming in to buy. What money that is left is on the sidelines. Most investors have turned their IRA's and 401K's into cash and fixed incomes. There was such a rush to buy treasury bonds that there aren't many left to buy that have any return. That is the opposite of corporate bonds. Treasuries are selling above par. So are general obligation municipal bonds of states that have strong governmental employee bases like Maryland. Revenue municipal bonds, which are much more sensitive to the economy are being discounted.

All of this is fascinating. A buy and hold strategy, preached by the financial planners, would have delivered to the steadfast investor a diminishment of net worth of retirement plans and IRA's approaching 50% over the last 6 months. That is a deep hole from which to return. Maybe a hole 5-6 years deep just to return to prior levels.

That means that seniors, Americans over 60, face a very uncertain future. They will be losing their jobs to employment cutbacks. They will be reaching mandatory retirement ages. Tomorrow's employment reports may show a widening and deepening loss of jobs in the economy. The United States has spent its way into this situation and failed to regulate financial leveraging that apparently had been based on very shaky economic assumptions. The senior generation will then be competing with our recent immigrant population for the Wal-Mart greeters, Costco baggers and receipt checkers and McDonald's salad makers jobs. Who is going to create the new jobs that are needed? It does not seem to me that small companies and entrepreneurs are going to be taking risks. There is a significant concern that tax rates on small businesses are going up. Cars are not selling. Retail analysts are reporting that any item with a price tag in excess of $500 may face extreme sales resistance. Think in your own life about your own buying plans. Loans for anything are very very hard to get. This all reads like the first chapter of Atlas Shrugged. Sphere: Related Content