2011 economic roadblocks
I am not going to predict any major market directions. However; there are some economic issues that will make or break the market this year.
1. Interest Rates, generally the Fed can force treasury rates to be whatever they want, but I think next year we are in for a spike in rates beyond the control of the Fed. Most of the reason is related to government borrowing that will occur next year. The other force will be if our economy actually rebounds.
This will turn the market negative for 18 months if we get a spike in rates. The reason why this happens is long, but it has to do with asset valuations. The other reason is the dollar will rise and the net effect is that us stocks will drop. Also the earnings of US companies from foreign operations will shrink. It is one big mess when it happens.
2. Unemployment will probably get worst. Forget jobless claims and that nonsense, the number of people that are really unemployed is huge. The government numbers are b/s and they simply do not count people who "stopped" looking.
here is a chart http://www.wolframalpha.com/input/?i=us+workforce
they count the workforce at around 150 million,
and another chart http://www.wolframalpha.com/input/?i...Fus+population
You can see how they reduced the size of the workforce. The problem is that the number of people entering the workforce increases, ( people graduating college and high school). And people are generally not going to retire unless they are forced, not after the last few years of declining wealth.
The unemployment rate among younger adults. ( people old enough to join the military, but choose not to ) is very high, like 24%.
Also you have population growth.
Wages are another issue. Walmart hiring really does not help the economy much, we need real wages.
The solution to this is the Reagan solution, put money into defense projects, but the left has specifically ruled that out.
3. Inflation.. I keep seeing that we do not have inflation and deflation is the major issue. Well that is sort of true. But the fact is we do have inflation, however, the inflation rate is obscured by the fact that construction and home building has disappeared. The other reason the numbers do not reflect inflation at the consumer level is because we do not manufacture our consumer products anymore.
So Walmart has to pay 2.20 for some crap from china they paid 2.00 last year. But where we do feel it is in operating expenses. Both at home and at work. Walmart and others are making record profits, and it was not by cutting overseas expenses, it was by cutting transportation costs in the US. And cutting jobs here.
I am going into a drug haze. So the point may be lost.
The areas where inflation is spiking, but being hidden by other areas, is energy and food. And it is dropping in the area of wages. Okay so we have low inflation because wages are low, not a good thing. And energy costs will only force more corporate cuts.
Since our economy is based on service jobs, it is not very promising for next year.
4. Real Estate. The real estate market will not improve anytime soon. I keep hearing the real estate agents use the "best time to buy, prices are at a discount". Two issues with that.. if we all agree now that we were in a bubble, then the prices today are not that much of a discount of what they probably should have been.
The other issue is that with pathetic wage growth, and millions who probably will not be getting mortgages after losing their houses, there probably will not be any pending demand anytime soon.
Add to that the fact that the baby boomers are retiring, and they are the single largest segment of the population. They actually have been the trend in every segment of the economy as they have gone through life. And their children are not the same go getters they have been. Most kids are living at home well past the age of 18. My nephews are 30,26, and 18. None of them have productive jobs.
So in a few months when real estate does not pick up as expected, it will create a very sad moment for the economists.
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