I just listened to a guy on CNBC, like many others, stating that based on fundamentals he sees the V shaped recovery. Sure, it would be safe to say that now; companies are going to show great productivity numbers, running lean as ever, but there is very little topline growth. In addition, companies are having to rely on volume at the cost of margin. I'd rather take margin anyday over profit. Furthermore, 4th quarter fundamentals are always based on Holiday Retail Sales. Hence, Q4 Earnings. I hope the chart from shadowstats.com appears below. This is a chart of the unemployment rates.
This, unemployment number, is the big kicker that will affect 4th quarter retail sales. and hence another dip. The rate is currently at 9.8, not including of course non farm, agriculture and those who have stopped looking for work, represented by the BLS and SGS Alternative numbers, according to the chart, brings the actual numbers between 17 and 22 percent. Although, agriculture jobs only represent 2-3 percent of the population or 6-10 million of the labor force, but that is still a large number and still doesn't include fishing industry jobs. Although, in geography class, North America is labeled a continent, in the whole scheme of things, it is pretty much a huge island represented by a good portion by the United States with the 5th largest fishing industry, which as well isn't in the count. Sure these are very regional, but regions end up dragging the rest of the local economies.
Retailers are going to react very interestingly this holiday season. I am expecting that they will go in with low prices from the beginning of the shopping season, only to find that this was the wrong call(go back to the blog SOS Recession). Consumers, "sitting on sideline" again, will wait till the last minute to shop, knowing that prices will drop to attract them. Again, decreasing expected margins of retailers and will be a drag on their earnings. Applying this to everything else, people know that at times of economic distress, the government gets bigger and has to provide more stimuli, to get industries going, trying to get our old consumer spending ways going again. Now, will the decisions of the retailers add to the deflationary pressures? Lowering of prices in everything, except commodities or hard assets these days, such as durable goods, real estate, food and maybe now consumer goods? Add to this the need to increase the money supply multiplying the effect on the weak strength of the dollar and the need to decrease interest rates again? Sound like Japan 2 decades ago? These are interesting times and as a macro and micro economics hobbyist great cases for study. As in Japan, will prices drop as demand drops and form a supply glut causing, in their case, a deflationary spiral, where business were unable to make enough profit, no matter how low they set their prices. Let's hope not, they just "celebrated" their 20th anniversary of economic stagnation. As Nouriel Roubini stated this week, their is a carry trade bubble forming, the Japanese Yen was and still is a carry trade preferred. Now, investors have another option, the US Dollar.
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