State of the Economy – September 2010

The DOW will breach 11,000 during the fall. The past few weeks have had a number of blue chips exceeding market expectations. The recession officially ended in July 2009. A head of the fall elections we will se massive legislation being introduced, which will set the rules of engagement and clear ambiguity. Overall I feel confident going into 2011.

I recently read an article that clicked for me. The reason why unemployment is reducing at the same speed, as in previous recessions, is that companies have down sized and upgraded. Work force productivity is still growing and keeping pace with the 2.5 growth rate. Until the currently employed workforce reaches capacity we will not see existing business hiring more. The only way to impact the unemployment rate is through an explosion in entrepreneurial start ups. The problem is that consumers are severely impacted and will not be able to consume all the products and services that new start ups would bring to market. Also start ups need funding, which is still not readily available. The other way to impact unemployment is through public works spending, but that will only have a limited time impact, even though it would improve interstate commerce and enable future growth. How about fiber to every home in the United States by 2015!

I have to say that I flip flop on the whole green revolution and how that could impact unemployment. I am a huge fan of the X-Prize foundation. Just today I read an article about Citroens electric racing car. I think there should be an Indy 500 type series only for electric cars. I think US auto manufacturer’s should lead in this. Electric cars should bring to the table the very peak of human innovation. Imagine the sheer acceleration of those gearless beasts! Premium series like F-1 drive a ton of innovation that trickles down to production cars. You slap a $10 million prize on the table and miracles happen that impact society on scale we can only imagine.

Well let’s return back to earth. The market is still very sluggish and slow. Almost agonizingly slow. The analogy would be a train climbing a mountain. Hitting the foothills was the start of the recession. The engine is over the top and the recession is officially over, but the engine ran out of momentum during the climb and there is a long line of cars that still need to be pulled over the top before the balance will shift. Due the momentum mid way up the hill the train was still cruising quite nicely even though loosing speed alarmingly fast.

I think that Q4 is the right time to start investing, because the balance will eventually shift and momentum will increase. I do not believe in a double dip. That would require that something drastic happens to the existing status quo, which has stabilized. Every day the economy is purging itself through repossessions and bankruptcies, but like a fever it is all good and cleansing… and cant last forever. Just down expect the engine to hit a steep slope. With stimulus we can get the train to cruise at higher speed, but we need a steeper slope to get back to 4% growth.


One Comment on “State of the Economy – September 2010”

  1. Jeev Trika says:

    This is definitely going to be in my bookmark.Thanks, Jeev Trika

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