It's the Economy?
Ok. There has been so much punditry on the economy lately. The Dow is wildly fluctuating between 12K and 13K. Housing prices in all U.S. markets and many non-U.S. markets are dropping. Liquidity has evaporated. Investors are shying away from many bonds and stock markets. Factory orders are dropping. We might be in a recession in the U.S. etc. etc. etc.

The consumer bottom line:

Median wages have not increased.

Debt financing of current expenses has increased.

It is time to pay up.

There is no additional cash from wages to pay with.


The firm's bottom line:

A lot of capital, since 9/11/01, has been invested in buying out investors instead of developing new technology or innovation.

Growth has been largely based on productivity gains from implementing technology developed in the 1990s - namely IT that allowed reducing administrative overheads, reaching less expensive labor markets, lowering inventory requirements, and increasing lean-ness and flexibility of manufacturing operations. Growth, in general, has not been based on meeting unmet consumer needs with technological innovation.

It is time to focus on innovation (in fact it is a little late).

But, the capital needed to invest in innovation was given back to investors (stock buybacks, etc.).

Investors (i.e. consumers) are out of cash and debt-strapped. There primary assets - their houses - are dropping in value. Their wages are not growing greater than the CPI (in fact lower).

Debt markets are low on cash with defaults increasing and investors shying away.


Hmmmmmmmmmmm.

Sound a bit like Japan in the early 1990s?

Probably not entirely the same. U.S. institutions tend to be a bit less well protected. But, let's expect a pretty rough ride for the next few years.
- posted by Richard @ 6:43 AM