January 6th, 2010
February, 2010. The next “Perfect Storm”
Already on its way to the business news channel of your.
It may crush the existing structure of Fannie and Freddy and drag the economy further down, no matter how many dollars the fed throws at it. Why did the Treasury & Fed recent announce that Fannie & Freddie were getting UNLIMITED backing – A BLANK CHECK, on of all days, this past Christmas Eve.
Here are the events:
Each individual event will have little visible effect alone, but combined they easily could crash the economy: these are all pending events, many will be listed on Major Media Outlets as individual events, because no one looks at them all together - but that is how we will feel them in our wallets.
1st, in the financial sectors : the next wave of ARMs will start to reset, mortgage rates will go up, the next wave of foreclosures will hit, the default on holiday expenditures will cause more chapter 7 and 13 filings, retailers already know how little they made, more chapter 11s, more scale backs or just plain closing. Example: The Footlocker retail chain is closing 120 stores - Lane Bryant closing 100 plus stores. The commercial sector bust is underway and will hit a crescendo in 2110.
Except in Washington DC and its suburbs, where office space demand is on fire. Can’t imagine why?
#1: In Banking & Finance;
The FDIC will collect the next 3 years of fees in advance to cover their depleted funds from the past bank failures. This will stress some but not all. Many banks are actually healthy, but it will push the weaker 10% that much farther towards instability.
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So banks will tighten lending rather than loosen as they must scramble to come up with this FDIC “tax”. More FDIC take overs, in essence using the banks own funds raised from the accelerated fee collection to do so, more bank mergers to avoid insolvency, all resulting in even tighter money and possible more expense money.
1: B The Stock Market.
The American stock market, in particular the DOW at 10,600, is a mini bubble looking for a pin. It is very unstable due to any # of influences, but the two that stand out are, first, a significant lack of trading volume and secondly, the low cash reserves being held in money market accounts, as is currently being commonly reported. These are contra indicators to any true growth. Don’t over rate the strength of the DOW.
#2: Employment
While losses will slow, simply because employers are hitting the “can’t cut and still produce“ point, losses will continue.
Employer hiring, what little there is,will slow to the minimum as the uncertainty of the goverment action on healthcare and new taxes dwells.
If this issue turns out as unfavorable as many believe, mid to small sized businesses will choke on them, resulting in more layoffs or more out right closures to pay for them.
The seasonal job numbers were “insignificant”. Retailers didn’t hire this season, and even more sales went to internet providers.
The numbers of “new” unemployment extension enrollment will be staggering.
#3 - Effects of the Health Care “Reform “Legislation.
Consumers will see new FICA rates and need to cut spending even more.
The proposed 40 % Luxury tax will result in a 20 to 30 % drop in so called “disposable" income for those who had any. This will murder an already abused luxury items sector, costing more high skilled, high paying jobs. Say good bye to RV’s, boats, and the jobs related to them and travel.
The insurance companies will pass any taxation along to premium payers. More disposable income disposed of.
The absurd proposed tax on medical products,(taxing everything from band aids & tampons to artifial limbs and knee replacement hardware) will also be passed along. When a state of the art prosthetic above knee leg, already costing $60,000, is that something that we really need to tax? Is walking such a luxury?
As we have seen, much of this federally mandated program will be borne by the States, many of which are running on empty already; therefore States are forced to also raise taxes.
Insurance rates, taxes and any health related cost will increase immediately.
An early arrival of the Alberta Clipper and coldest winter in a few years coupled with a volatile oil market drains that last bit of disposable income.
If you haven’t already said good bye to your disposable income, do so now.
The vicious cycle of “Trickle Down" is relentless when in downawrd motion. The big layoff when the publicly traded multi national cuts compliment and orders to the regional, privately owned vendors and service suppliers who in turn must lay off, and can’t invest in their operations. These owners don’t buy a car this year, can’t take a vacation or take their kds out of the expensive private school.
With fewer orders going out to the multi national, the local trucking or UPS hub layoffs, the bar & restaurant where the workers met after their shift cuts back hours, lays off a waitress, their supplier cuts a driver or too and a hairdresser over on main street throws in the towel and walks away from her lease putting the squeeze on her landlord, contributing to the commercial real estate sector’s meltdown. Meanwhile, the stock in the multi national has tanked, taking the IRA’s of all above into the tank with them.
Tell me there is no such thing as trickle down economics.
Omar P Bounds III AARE, CES, GPPA
The Bounds Auction Company
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