Letter Re: Some Economic Indicators to Watch

James Wesley,
I just had lunch today with a senior bank executive in Chicago. He confirmed much of what I have been seeing in the economy. After picking his brains, I have put together a few economic indicators to watch:

– Christmas will be a financial disaster – people are reluctant to spend their cash. Weak sales will be a tipping point for many retailers

– Commercial real estate is the next “shoe-to-drop”

– Small businesses continue to struggle – their problems will broaden and deepen as credit is strangled – SBA loans are off-the-street, defaults may be as high as 50% and growing, banks are not lending (see rutledgecapital.com – banks holding record cash reserves from Fred Reserve)

– Consumer Credit Cards – the second next-shoe-to-drop – Piled high and deep – longer unemployment means people can’t keep up payments

-Bankruptcies increase – especially in construction industry and real estate-related industries

– Joblessness – watch the U-6 column (the BLS report on a more “real” unemployment number.) Unemployment, according to Dept of Labor is over 16.5%

The big imminent threat? Inflation – “too much money chasing too few goods” as Milton Friedman warned. The government printing money, and inventories are falling –[ a classic inflation precursor].

Economic recovery? At least 18-24 months from now. Media reports about “recession end in sight” are nonsense.

Federal leadership is a “nightmare” – making all the wrong moves. Look for higher taxes, inflation, increased joblessness (as small businesses fail).

Outlook? Grim.

Best Advice – Avoid bonds (higher yields which are needed encourage buyers of US Treasurys = lower bond prices)

Avoid stocks – look for a “W” market move – stocks to go lower ([Dow] 3,800, H.S. Dent says) Why? Corporate earnings are very weak.

What to buy? Farmland and ammunition

And remember, I am an optimist.

Blessings, – Jeff E.