As we continue into the bleakness of economic outlooks, us bloggers, more than anyone else have been bullishly describing our predicaments and the short comings of private sector and especially government. Before I get shredded, let's look at the possibilities of a stimulus of all stimulus, this would be the stimulus that keeps on giving. As we did in the past during World War I and especially during II, starting from scratch and overnight growing and re-establishing our manufacturing a new US Manufacturing powerhouse. Furthermore, this is the gift that keeps on giving because jobs would be created immediately in all sectors. As a continuation of my comment on Paco Ahlgren's, "The Destruction of the Dollar: It's Nearly Inevitable" on Seeking Alpha, I will start with the comment below:
Here's the link if you like:
http://seekingalpha.com/article/176855-the-destruction-of-the-dollar-it-s-nearly-inevitable?source=commenter
COMMENT:
Anything can be done. Instead of bringing back manufacturing, we need to rebuild manufacturing, like Japan's rebuild after the war. I have no doubt in my mind that we can again be and are innovative and that this innovation can be applied to a new manufacturing sector far more advanced than anywhere else in the world. The rebuild would require more education and lots of money. When setting the budget to rebuild manufacturing, we need to set the budget by high balling rebuild costs and low balling expected initial revenues. Especially since government involvement would be apparent, who we all know are horrible at forecasting and setting budgets, which in turn causes bickering between parties about costs and more costs because of one party wanting to stop and the other wanting to go, you know the usual. Just set costs high and do it right. In addition, in the planning phase, a large percentage of the budget needs to be allocated to R&D and re-investment into capital improvements to keep us ahead. However, things of concern are how many jobs would this create? With the newest innovative ways comes a whole lot of automation, man vs machine for jobs and to make us more competitive on cheap labor pricing. However, this would still bring a lot of jobs in logistics, sales, engineering.... Would our current services workforce be able to handle this shift or would we simply be bringing more people from abroad to fill these positions? Of course with any single thing we add, a hundred more questions come up. Lol, I could probably think and write about this for a while, but I hope we can get this subject rolling, so I will help facilitate. Well, I hope.
Please comment back to add, re-think or debunk any ideas. Another factor I left out in the comment was, location or the possible optimal places in the United States for the rebuild. Could we do it in Detroit and the other rust belt cities? Detroit has good train transport intersections... It would probably be cheaper to rebuild from scratch, but let's keep in mind re-vitalization. Also, take into consideration funding, both private and public. Let's answer the who, what, where and whens. Maybe afterwards, I can compile the great ideas into one single page. I am simply seeking our creativity from the SA community, which drives innovative thoughts. I think the possibilities of solutions with a great community with diverse backgrounds are endless.
Wednesday, December 9, 2009
New Economic Perfect Storm, Ongoing Deleverage Effect
The intertwinings of commercial RE, unemployment, contnued deleveraging, consumer debt and ongoing housing risks continues.
Deleveraging will continue with a negative unemployment surprise coming with companies rethinking the organizational charts while they can. Easier to reorganize, while lean and mean, which companies have more opportunity now to do than ever before. These are the companies that will churn out incredible numbers from this point forward. Unfortunately, with a predominant services industry the downsizing will continue and productivity will be the new game. Employers will become more and more productive with what they have. Believe me, companies are re-thinking organizational structures and procedures to create the new norm for how their companies are run, managed and products are delivered. Productivity gains will continue as long as people feel they must do whatever they need to do to keep their current jobs, which is a factor that is really keeping the consumer confidence levels below the 50 mark.
The current NFP unemployment numbers at 10% still poses an incredible consumer debt exposer of banks and the fragility of commerce as eventually continued high unemployment's effects start to uncover many more fragilities in the system regarding defaults in respect to consumer and bank exposure, compounded by a still apparent credit crunch caused by governmental requirements on bank cash reserves. Add to the above our projected GDP growth to optimally correct unemployment, we would need about 12% next year. Don't hold your breath.
As companies continue to deleverage companies will require less commercial space and as companies become more lean and unemployment slightly increases or more likely stays at these levels for a lengthy period of time, the less need for office space expansions as long as the economy doesn't go down further. As commercial re companies scramble to fill empty space, deflated prices will start to really snowball and a true showing of supply and demand will be revealed. Many will be forced to default on current loans, as consumers in the residential markets are "in over their head", the commercial re sector is headed directly into this same predicament. Furthermore, as the credit crunch continues, the scramble will continue for commercial re, as in residential for refinancing, while banks continue to shun anything real estate as both an over reaction of really getting burned once already and fulfilling the governments requirement of larger cash reserves.
Housing exposure of banks due to unemployment are too large a factor to not worry about. This single handedly has everyone worried, especially the Feds and the Whitehouse. Housing and employment are the largest components of consumer confidence and as housing continues to drag the economy, so will consumer moods and spending. The full exposure of banks to housing has not been fully realized from a combination of consumer credit, unemployment and continued private sector deleveraging. What we have seen is the subprime loans and some prime loans falling into default. The full brunt has not been felt on the prime loan side and, 2nd mortgages and heloc's. This is just developing. Fallout of the large unemployment pool will increasingly uncover prime borrowers that are unemployed, living off quickly evaporating severance packages. Additionally, as improvements only show up regionally and as these borrowers' severances dry up, expect more people walking away from their homes if they have a little equity after housing price depreciation. Those borrowers with equity built in and with severances drying up will sell their houses for far below market to move to areas where they believe their employment chances will increase further fueling housing price index declines . Either way, these are not good signs for housing.
The above predictions depend mainly on all things being the same. If the economy gets better, the better the outcome. The worsening, which is accepted consensus wide, or the worse is ahead view and the worse things may come.
Deleveraging will continue with a negative unemployment surprise coming with companies rethinking the organizational charts while they can. Easier to reorganize, while lean and mean, which companies have more opportunity now to do than ever before. These are the companies that will churn out incredible numbers from this point forward. Unfortunately, with a predominant services industry the downsizing will continue and productivity will be the new game. Employers will become more and more productive with what they have. Believe me, companies are re-thinking organizational structures and procedures to create the new norm for how their companies are run, managed and products are delivered. Productivity gains will continue as long as people feel they must do whatever they need to do to keep their current jobs, which is a factor that is really keeping the consumer confidence levels below the 50 mark.
The current NFP unemployment numbers at 10% still poses an incredible consumer debt exposer of banks and the fragility of commerce as eventually continued high unemployment's effects start to uncover many more fragilities in the system regarding defaults in respect to consumer and bank exposure, compounded by a still apparent credit crunch caused by governmental requirements on bank cash reserves. Add to the above our projected GDP growth to optimally correct unemployment, we would need about 12% next year. Don't hold your breath.
As companies continue to deleverage companies will require less commercial space and as companies become more lean and unemployment slightly increases or more likely stays at these levels for a lengthy period of time, the less need for office space expansions as long as the economy doesn't go down further. As commercial re companies scramble to fill empty space, deflated prices will start to really snowball and a true showing of supply and demand will be revealed. Many will be forced to default on current loans, as consumers in the residential markets are "in over their head", the commercial re sector is headed directly into this same predicament. Furthermore, as the credit crunch continues, the scramble will continue for commercial re, as in residential for refinancing, while banks continue to shun anything real estate as both an over reaction of really getting burned once already and fulfilling the governments requirement of larger cash reserves.
Housing exposure of banks due to unemployment are too large a factor to not worry about. This single handedly has everyone worried, especially the Feds and the Whitehouse. Housing and employment are the largest components of consumer confidence and as housing continues to drag the economy, so will consumer moods and spending. The full exposure of banks to housing has not been fully realized from a combination of consumer credit, unemployment and continued private sector deleveraging. What we have seen is the subprime loans and some prime loans falling into default. The full brunt has not been felt on the prime loan side and, 2nd mortgages and heloc's. This is just developing. Fallout of the large unemployment pool will increasingly uncover prime borrowers that are unemployed, living off quickly evaporating severance packages. Additionally, as improvements only show up regionally and as these borrowers' severances dry up, expect more people walking away from their homes if they have a little equity after housing price depreciation. Those borrowers with equity built in and with severances drying up will sell their houses for far below market to move to areas where they believe their employment chances will increase further fueling housing price index declines . Either way, these are not good signs for housing.
The above predictions depend mainly on all things being the same. If the economy gets better, the better the outcome. The worsening, which is accepted consensus wide, or the worse is ahead view and the worse things may come.
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