Most Investors Survived The Economic Meltdown But Can We Survive The Recovery? + Lee’s take on C, BAC, WFC, GM, AIG, LTD, F, TGT, WMT, KSS, PSA, and RT
 InvestorsObserver Featured Contributor Lee M. Allen |
The airwaves are humming with jubilant people dancing in the streets because we have apparently survived the worst economic downturn since the Great Depression. Some economists like our own very smart Ben Bernanke have even declared the recession relatively over. What ever that means in plain English. Outside of the previously shaky but now miraculously cured banking/finance sector companies have either evaporated or were taken over by the government. But I’m not sure when if ever companies like will be declared cured of past ills. Read on for more of Lee’s insights on surviving the economic recovery... |
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Most of the attention has been on the pain and suffering associated with the ginormous recession that has just been declared over. But only a few people seem to be worried that the recovery could be the actual hard part. All the real economic problems may not actually be gone. Sort of like a urinary infection that keeps coming back.
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The country has just gone through a foundation-rocking experience where many of the assumption we all made were proven sort of completely wrong. I think this may be one of the official ten comments Charlton Heston brought down form the mountain? I’m talking about assumptions like people who steal will be put behind bars and not given multi-million dollar bonuses. You guessed it… I’m referring to these people who felt it was okay to take huge bonuses even though the company they worked for was driven into the ground and on U. S. Tax Payer life support. I’m sorry but in any rational world these thieves would be the people losing their jobs not the hard working people who don’t have lavish multi-million dollar bonus plans. |
We have also made some assumption in the past that government would stick to things like governing and the people would stick to things like running companies. That’s another assumption that has sort of been suspended with the government now in the insurance business with substantial ownership of American International Group (AIG) and the auto business with ownership of General Motors (GM). The post office I can accept. When it comes to getting mail to every corner of the country if the government didn’t do it no one else could probably find a way to get credit card junk mail and Victoria’s Secret –owned by Limited Brands (LTD)- catalogs to places like Badwater Basin, California, Amatignak Island, Alaska, or Detroit, Michigan.
Things could certainly be different during this recovery…
Will the U.S. Government and its subsidiaries like the U.S. Army, Post Office, American International Group (AIG), and CitiGroup buy Ford (F) vehicles? Can these corporations that took government bailouts accept that when they make profits they owe all the tax payers like me and you a piece of that action? Will people ever spend with abandon again? Can the Chinese actually build their economy without spend-happy Americans buying all the stuff they make?
Ford has clearly emerged as the smartest car company around. While GM and Chrysler panicked and flew to Washington in their private jets, Ford somehow managed their company without threatening to have a huge garage sale and go bankrupt. They may not sell many cars to their competitor, the U.S. Government or its subsidiaries, but if I was in the market for a new car I would be stopping at a Ford dealer first. Anyone who can keep their company sound and strong in times of trouble probably knows how to build a good car, too. Last time I checked, the way business worked was that when you made money. If there was anything left after you paid taxes, you got to keep it. And when you lost money tough luck, so sad, bye and thanks for all the fish. But in this new economy you keep all the profits when they come in and when there are losses you don’t need to worry because the government will bail you out and make sure you get your bonuses, too. That is unless you are one of the millions of small businesses that are the real job creation, tax paying, innovation force that has always powered this economy. |
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If, like rip Van Winkle, you fell asleep fifty-years ago only to wake up in 2008 the first thing you would notice is that most of the country seems to be plowed over with shopping malls, retail parks, and discounters like Target (TGT), Wal-Mart (WMT) and Kohl’s (KSS). After this fifty year nap you would also see very few factories actually producing goods. The country has gone from a producing society to a consuming society. We produce very little and until about a year ago we bought so much stuff companies like Public Storage (PSA) popped up in most every town to provide temporary storage for the stuff that would not fit in our attics, garages, or SUV trunks. This was bound to catch up with us sooner or later. It did, about this time last year. Hopefully we will not go back to near addictive consumption any time soon. Try buying what you really need for a while. It will work wonders for your credit card balance but may make this a longer recovery. Better that than another credit crisis.
Which brings us to our best friends forever, the Chinese…
You have to love these people. They have single handedly manufactured about everything we consumed over the last ten years. Shoes, electronics, clothing, kitchen appliances, and more… It hard to find anything the Chinese don’t make in their endless array of factories. They made it possible for most of us to vastly improve the way we live at very low prices. Unfortunately the Chinese also wiped out complete manufacturing industries in other countries including ours. Does anyone here make shoes and color television sets any more?
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The problem is while the Chinese are long on cheap manufacturing capacity and low cost labor they are short on basic economic common sense. If you drive all your customers out of businesses you will eventually not have anyone to buy your piles of stuff. I’ve been to China and I can tell you the Chinese are not really consumers to the level that we are. So if some smart Chinese guy thinks their own people will buy all the goods they produce, he may went to rethink his assumption. The average weekly income for a Chinese worker is somewhere around $95/Week. How many iPods, television sets, wash machines, cars, or new wardrobes would you be able to buy if you made less that $100 a week? No wonder the Chinese were a little upset this week when President Obama hit them with those new auto tire tariffs. Not many people in China have cars. What were they going to do with all the tires? |
One thing that should help you sleep better over the next year is that we are nearing the mid-term election season. With weak unemployment and few prospects for unskilled labor you can bet that your senators and congress people who are up for relection in 2010 will be doing what ever it takes to hold on to their plumb jobs in Washington. Expect the programs, policies, and pork to be flowing freely. That should prop things up for a while. At least until the bill comes due.
If you have any other ideas on how to survive this economic recovery or a connection for Ruby Tuesday (RT) coupons, email me at
LeeAllen@InvestorsObserver.com.
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