Eurozone and the Florida Economy

Florida - Europa Connection

As California is the U.S. Gateway to Asia, so is Florida to Europe and South America. Earlier this month on the occasion of the 60th Annual Europe Day, Florida Governor Charlie Crist met with members of the European Union (EU) Consular Corps of Florida to discuss Florida-EU relations, including trade exchange and investment opportunities, as well as social and cultural ties. The Governor was briefed by each representative on the current political and economic conditions throughout the EU, and discussed new opportunities for business collaboration.

As European companies are actively looking for new strongholds on this side of the Atlantic, more and more the focus moves to Florida because of several geographic and climatological advantages. South America, a 55 million market strong Caribbean Basin, a renewed functionality for the Panama Canal with its 2014 expansion completion, the impending normalization of Cuban relations; there is much for European companies to consider Florida.
Florida and Europe already share strong relations in trade, investment and tourism.

Europe is Florida’s second largest market for international trade, at $16.9 billion in 2009. Additionally, Europe is Florida’s largest foreign investor by world region, with $14.9 billion in Foreign Direct Investment (FDI) in 2006; and is the largest foreign employer, with 1,300 European companies across the state employing more than 167,000 Floridians.  Europe also represents Florida’s largest foreign tourism market, with 3.25 million visitors traveling to the state in 2008.

Governor Crist was briefed by Consuls General Gael de Maisonneuve of France, Antonios Sgouropoulos of Greece, Lucita Moenir Alam of the Netherlands, Santiago Cabanas of Spain, and Kevin McGurgan of the United Kingdom who were in Tallahassee for a series of meetings in honor of the 60th annual Europe Day. Many Americans do not entirely understand the construction of the European Union as the political, legal and economic union of 27 European member states with a population of nearly 500 million people and a combined Gross Domestic Product of $16.1 trillion. Statistics used here in the US still separate these numbers between former independent economic entities such Germany, France, the UK, the Netherlands, Spain etc. But the European Union is the largest economic producer in the world. To further understand the current problems with the Euro, this is the currency of 16 members of the 27, who decided about 10 years ago to form the Eurozone with one currency.

Here are some Florida-EU Fast Facts:

·       Bilateral Trade: $16.9 billion in 2009, 16.5 percent of total world trade with Florida and second largest overall trade partner by world region

·       Imports from EU (2009): $9.5 billion, 22 percent of world total and second by region

·       Exports to EU (2009): $8.8 billion, 18 percent of world total and second by region

·       Foreign Direct Investment (FDI) from Europe: $14.9 billion in 2006; 49 percent of total world FDI in Florida, ranked first overall by region

·       1,300 European companies employ more than 167,000 in our state or 67 percent of total foreign employment in Florida; first overall by world region (Asia is second at 12 percent.)

·        Florida’s number-one foreign tourism world region market with 3.25 million visitors in 2008 (32.7 percent of foreign total)

Europe means a lot more to Florida’s well-being as is generally assumed, a fact that is further underlined with the assessment that in 2008 a good one third or 101,000 home purchases of all Florida residential real estate transactions, had international buyers and 73% of those were European.

Especially the Jacksonville area is in the focus of European expansions into Florida.

A Triangle of Economic Reflections

Breaking the Grip of the Federal Reserve will be essential to a new beginning

I feel less and less inclined to write about the economy and just wait until the financial system has successfully collapsed. The reflections currently going back and forth between the US, Europe and China, with India and Japan in a first row hands off onlooker position is rapidly becoming stale and boring and the playing field for incompetent media followers of fashion.

Last Thursday a lot of traders’ and investors’ walked home with soiled pants when Wall Street took a massive one day nose dive and apocalyptic headliners dominated the news…for one evening!
There is a herd of blindfolded imbeciles following the media in their analysis that Europe is doomed and is going to take down the world, followed the next day by reports from expert forecasters that all will be good to great soon.

It’s Monday, the weekend is history and the headlines say: Stocks mostly fell Monday as another slump in the Euro prolonged concerns about Europe’s economy. A quick look after the market closed today tells me that Google, Apple and Gold were on the plus side, while the Dow lost almost 127 points and is closing in on breaking through 10,000 on her way down.  Nasdaq and S&P lost a bit too. Today the culprit is the US Government and its plans to reign in the banks with new regulations.
The Euro is down because of these concerns following a bailout of a previously unknown regional bank in Southern Spain.

Come on people, let’s cut the crap. The Euro was $1.2367 this morning which is still ahead of $1.232 it showed more than a week ago and by 6pm the Euro had cracked past 124 again because it’s a geo political game out there that few understand and fewer really control.
The world currency play right now is politically motivated. Here is the peg scenario between the Dollar, the Euro and the Chinese yuan. If the dollar strengthens against the Euro, the Yuan strengthens and that puts a serious stick into the spokes of the Chinese economy as exports get more expensive. The Chinese growth momentum cannot afford having its currency gain strength against the currency of its number one trading partner -THE EUROZONE-because of a weakening Euro.

Traders and pundits are constantly talking about problems elsewhere that incapacitate American growth.
Last week it was Germany banning that devilish habit of “naked short selling” which is as we all agree a totally immoral rape of the economy. This week it is a little savings bank in Southern Spain no one has ever heard of. And the suggested reason for panic is that this is only the second time in history that the Spanish Central Bank has taken over a bank.

Learn your history people;

When markets are ready to roll over, they’ll roll over. Experts, Commentators, forecasters and analysts can look for the ’cause,’ but they are just making noise. Lots of it, unfortunately.

 So may I suggest that we take our eyes off the naked Germans or the protesting Greeks and instead take a look at what is going on in the US of A…

The Great Credit Correction is a worldwide phenomenon, but it is for all intents and purposes, centered in America.

The US economy is changing.

As a result, all the world’s credits need to be re-priced. We spoke about this about 2 years ago when the process started and we implied a credit re-pricing of up to 60% for some many public and private players.

 What does that mean? Just that much of the world economy was geared to a trend that has come to an end – the growth and leveraging of the US consumer economy.

In China, for example, much of the export apparatus is set up to service US households. And much of the rest of it faces the opposite direction – towards Europe. Actually Europe has surpassed the US as China’s largest trading partner.
 But to China the old world and the new world are both beginning to look a little stale. Both have too much debt. Both have made too many promises to too many people. Both have been using China to fund their excesses. 

And if we are looking at chapters of the Crisis, we are now, broadly speaking, in the process of debt de-leveraging.

The private sector in America is paying down and/or defaulting on their debts. In the housing market, for example, delinquencies and foreclosures are at near peak levels. And demand for new mortgage loans is at a 13-year low even though some may want you to read an upswing in sale of existing homes based on incentives alone, yet not elaborating that these numbers have no basis to compare with.

Since so much of the wealth of the country has rested on housing prices, it is not surprising that a write-down in house prices would be as unwelcome as Chinese wallboard and lead painted toddler toys. In fact, it’s hard to find a place that hasn’t been affected. Overall people have less money; they spend less. They are also relatively well situated in credit intensive purchases and will drive their cars one or two years longer than in previous years. THEY’RE RE-BALANCING THEIR NEEDS AND WANTS.

And as they have too much debt and credit is tight, they borrow less. Sales go down. And the banks that hold much of this debt go bust. The FDIC says it has put 775 banks in the US on the endangered list recently and yet we talk about a little bank in Spain as another trigger for economic unrest??

When sales go down, so does employment. The latest figures show jobless claims rising again, don’t believe otherwise. Among the poor and uneducated, the unemployment rate is over 30%, yet prognosticators with borders are following blemished government statistics and predict drastic drops in unemployment, based on the artificial strength of the dollar.

 Meanwhile, the de-leveraging process is clearly seen in falling consumer and wholesales prices. Demand goes down; so do prices. Both indexes are down, with less consumer inflation than at any time in more than 40 years.

In Europe, the process of de-leveraging focuses on governments. By and large, private households are much sounder, financially, in Europe than they are in America, as families traditionally take on less debt. But governments are just as shaky…and sometimes in worse shape than in the US, primarily because the Eurozone is still a pre-teen organization, with the Euro not yet even 10 years old. No excuse, just observation.

The credits of Greece, Spain, and Portugal have already been marked down considerably. All European countries are rapidly building drastic spending cuts. Most likely, the credits – bonds and currencies – of the others at stake will follow soon 
as Governments are trying to appease the market gods by offering to sacrifice virgins, widows, orphans, the rich and other taxpayers.

Higher taxes and austerity measures are expected to give investors confidence. 

Naturally, neither the virgins nor the taxpayers are willing to go down this road. Neither are government employees, whose salaries and pensions are supposed to be cut. The process of de-leveraging is going to be long and hard, in any case. Most likely, it will end in bankruptcy, default and write-downs of public debt. One way or the other the great credit adjustment will arrive.

But let’s not forget that Euroland at least is taking up the issue while on this side of the Atlantic, few politicians, taxpayers, or investors see a problem and the news media keep finding “believable” sources that swear that the good times are saddled up to come marching in again. They believe the credit of the US is not only elastic, but with unlimited stretch. 
So let’s sit back and wait ’til it snaps, because honestly there is very little that can be done at this stage of the game!

And when it happens, we may want to remind ourselves  that it’s not the end of the world and it will force us to focus on what is good with the American economy, rather than wasting time chasing a past and a system that has changed forever.

Argentina Collapsed Gracefully 9 Years Ago

It is like with today’s followers of the TV dramas “Lost” or “Law and Order”; when the curtain falls something else will replace it. Period. We’ll adjust.
I remember the collapse of Argentina less than 10 years ago, when the country defaulted on the largest debt in history of $100 billion. Collapse comes when the fixes are more costly than the problem. Something we started with bailouts and too big to fail hand outs, a system that is now adopted by our European counterparts.

W. C. Fields put the predicament as follows: ‘If at first you don’t succeed, try, again. Then give up. No sense in being a damned fool about it.’ Let that be a lesson.

Or like local attorney Robert Peters admitted in a conversation of realities: If you’re down 22 to zero in the bottom of the Seventh, you may want to throw in the towel, while you still have something to rebuild from.
That’s what Argentine did and now 9 years later they do quite well considering the world’s financial disorder. My plea is not to be irresponsible and just walk away, yet I think we need to prepare for a successful collapse and solid rebuild keeping what is good and discarding what should have never become part of our financial system. A Federal Reserve would be my first choice.

What are we looking at?

In closing I’d like to say for the record that in the current chapter of the crisis, the U.S. dollar is likely to regain its temporary aura of being the sweetheart of the global financial community, albeit deeply dysfunctional. The country’s indebtedness will not go away. What will also not go away is the tendency for people to spend more than they bring home. America’s spendthrift is monumental.
And even though I hate time predictions in a world that only needs one Black Swan to throw off any timing, I look at 5 to 8 months of propped up bliss for the US, before the Collapse is inevitable and commodity prices have come so far under pressure that gas and oil prices alone will torpedo any recovery.

My suggestion: stay liquid, use liquidity to buy good deals in real estate, gold and silver and stay alert. Stay out of the stockmarket.

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Uncle Pete Was a Money Manager

Uncle Pete was a great Money Manager

Many years ago we had a shoemaker here in Fernandina by the name of Pete.  He came from Greece with a trade of building orthopedic shoes for people with severe foot problems.  He had a great business and some very famous customers who stayed with him through the years.  His shop was where España Restaurant is today on South 4th. Street.  As a kid I would often stop by Uncle Pete’s because he was a fascinating man and always had a good story to tell.

Uncle Pete either had nails in his mouth or a Chesterfield cigarette.  It always amazed me at how he could keep from swallowing a nail or two.  Of course he always warned me to never try putting nails in my mouth, as that was too dangerous.  Uncle Pete had a unique way of buying a new car.  He liked Pontiacs and every four or five years he would buy a new one.  He would go to the dealer, pick out the car he wanted and get a price, in writing.  He had a small safe in the back of his shop from where he would make “payments” on that car until he had it paid for.

Some weeks he would make two or three payments, depending on business.  He never paid one penny interest, on anything.  He would lecture us as to the power of feeling free and his advice was always the same: don’t owe any money to anyone.

I don’t think I remember Uncle Pete ever having anything to pay monthly other than a light bill and phone bill.  He always paid in cash and never financed anything.  This system worked well for him and his family.  It was the old country’s way of life, a habit formed and never abandoned or betrayed.

Today so many of us have formed other habits, spend if you have it and if you don’t, then borrow it.  This recession has made believers out of a lot of folks, for many the bills are coming due and there are no funds to pay them with and they are discovering that this is not freedom.  I find it interesting to learn about the number of people who are growing their own tomatoes and vegetables these days, clipping coupons and saving a little… many for the first time in their lives.

I remember the stories uncle Pete would tell of struggling to simply get to America, the land of opportunity.  He told stories of how his family in Greece would make do with only one piece of meat and a partial loaf of bread in the house with no money to buy more food.   I think Uncle Pete would have had a lot to say today if he were here, both about American spending and how his Greek countrymen had forgotten the old values. He would probably paint a similar picture of one piece of meat and a couple of slices of bread.

I know a lot of people who would love to be debt free today.  But that can only come with lesser “wants”. My grandmother also used to say that easy money would lead to big heartaches, I think these old timers knew a lot more then we give them credit for.

The Economy Keeps Drifting

As the Euro is learning to swim for a gold medal

It’s Monday in Wall Street land and every trader and investor is jubilant about the fact that the Eurozone is pulling a trillion Euro out of a hat somewhere to “guarantee” the survival of the currency, all the while having the IMF offering another 5 or so billions to rescue Greece.

Result? A stock market that was still reeling from last week’s computer glitch (??) saw enough positive news to start a new bullish rise pushing the DOW, S&P and Nasdaq up again.
It’s spring time in the sun shine and we all should be fine and drink wine.

Some of us don’t however. We go behind the scene once again to calculate the results and consequences of these actions and write our conclusions in newspaper columns, on radio and TV and all over the internet. And the first thing we say is: Greece doesn’t need being rescued. And here the stupid herd starts running again like a chicken with its head cut off. So by evening when sobriety sets in the euphoria about the “rescue” package starts to fade.

It’s Tuesday Morning in Wall Street land, what a difference a day makes! What was so sunny and bright yesterday has turned dark and cautious again.

Meanwhile across the pond the 16 nation euro zone is wondering if saving Greece is worth the destabilization of the currency while the other 11 countries in the 27 nation Union are blessing the fact that they never or not yet adopted the Euro, as if the British pound is off any better. Romania and Hungary are singing hallelujah as suddenly the downside of being part of the Euro zone became clear, while Estonia is sweating over possible rejection. The Brits are vowing never to adopt the Euro and Poland says, our economy is doing well without the Euro.

Banks and governments are talking about Rescuing Greece, but there is no rescue for Greece, it’s just another 150 billion added to the national debt.

The loan will increase the annual debt service bill for Greek taxpayers by billions. Forever?  And it will set the stage for another so-called bailout next year. And the next, and the next. Probably forever.

If Greece had not been part of the Euro, they could have simply devalued the Drachma and then, in a few years, they could renegotiate the debts and settle for payments of thirty cents on the dollar or Euro. Kind of what Argentina does from time to time. It’s like playing a balancing act between a banana republic and a well run, responsible nation. In the sweep of history currencies come and go but life goes on. Yet that is what banks, the irresponsible big ones, fear the most. In this bail out they get paid back for their irresponsible loans of the past, while the Greek population gets another $15 billion or so in annual burdens tagged on to their balance of payments. Politicians and stakeholders will once again trumpet that the global financial system is sound and the Euro is under control.

A Santorini Sunset is Magic Beyond Belief

Of course the problem is that most investors by now are aware of the fact that Greece is not an isolated situation and policy makers are scared out of their minds about the contagiousness of Greece for so many other places that have heavy debts, huge deficits, a giant number of off-balance-sheets items and who are facing ratings downgrades in the near future.
Obviously the easiest thing to do right now, would be to kick Greece out of the union and say: “You’re on your own”. It could go back to being that magnificently cultured vacation spot in the Aegean Sea and slowly build back its economy.

No chance in hell shylock, policy makers will not accept omelets of egg on their collective faces, and banks want their money…now and not 30 cents on the dollar later.

Globally this leads to the next scenario: A lack of confidence in one area leads to enhanced confidence somewhere else, and in the current situation bond investors are increasingly forced into US paper while other needy borrowers face tough times.  The dollar, notwithstanding its huge blemishes, is almost the last man standing in the western economic picture. The US may have shrugged off the responsibility of being the world’s reserve currency, but it still enjoys some of the benefits.

At least for now.

By Tuesday afternoon, Bio-tech comes to the rescue of the exhausted investors and the herd finds renewed energy for another rally. Greece keeps on nagging somewhere in the back of their minds, but let’s run with biotech for now. The value components of the stock market will climb as currencies decline and make no mistake, so will the dollar. Even though the dollar showed gains against the Euro, Gold and silver are still your best bet and with the Euro in extremely hot water, we should really wonder if we will be able to rescue the dollar when the time comes. Gold moved strongly into an all time high territory today.

Another sign that investors are looking for a safety net or a place to hang their hat for a while.

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FDIC Closed 10th Florida Bank This Year

Last Friday the FDIC shut down the 10th Florida bank this year, the Bank of Bonifay. Honestly I had to look up where exactly Bonifay is located, but what got me to the story was, that the First Federal Bank of Florida, head quartered in Lake City had agreed with the FDIC to take over deposits and some assets to continue operating this bank.

Well as a recent new customer to First Federal here in Fernandina Beach on Amelia Island, the customer service at this bank blew me away from day one. It’s not an experience I’m going to describe here in all details, because that’s what advertising is for, but as a public information source I can honestly say that Bank of Bonifay Account Holders will have a very pleasant and secure surprise to look forward to with the arrival of First Federal of Florida Bank.

Now why should this announcement be of any importance?

Well first of all, the announcement that the FDIC had closed the 104 year old Bank of Bonifay made  it official that so far this year twice as many banks have been closed down than in disaster year 2009. (68 versus 32). Here is the FDIC’s press release on this closing.
Also the fact that this was already the 10th bank here in Florida this year, accounts for a very alarmingly high rate and trend if I put that number into statistical format. Translation: the average for the 50 states in the union would be a little over 1.3 banks per state, making Florida’s 10 banks in comparison a dangerous state to bank in, were it not for the Federal Deposit Insurance Corporation’s guarantees. Question remains how much longer the FDIC can keep on guaranteeing the deposits at a $250,000 per individual level, knowing that 2010’s final closing number may be close to 200 banks?

Secondly, Bonifay is located in the Panhandle, -just north of I-10, almost straight north of Panama City, while most of the previous bank closings in Florida were in South Florida and could be entirely contributed to bad real estate loans. I contemplated how bad real estate loans could be playing a role in a bank’s demise when the entire area is covered with cattle and produce farms and arrived at the conclusion that this bank’s closing had very little to do with the real estate collapse, but everything with greed, old fashioned monopolistic control dynasties and miserable customer service.

The shareholders, a small group of good ole’ boys took for example $15 million in dividends out, while the bank was losing money in 2007/2008. They apparently mimicked Wall Street’s goons and tycoons in a small town setting.
The demise should however not have come as a surprise to any of Bank of Bonifay’s depositors and account holders, because a lot of the bank’s lore and the people behind it has been reported on the internet comment site since late 2008.
Oh and the bank’s website has been closed down as well.

Thirdly, it seems time for me to interview some of the people behind First Federal of Florida (to be distinguished from the First Federal Bank of North Florida). Their philosophy of customer service is more than just words, it is put into action.
The bank’s website’s President’s Message today had a word for the people in Bonifay and one line in particular caught my eye:

– In fact, to our customers, bigness can be a barrier. I have never heard of a customer saying, “I want to bank here because you acquired a bank, and you are growing.”
What our customers, and all of us are looking for, is safety, strength and security, from friendly, ethical, hometown bankers that they can trust.-

Guess what? After all the misery Wall Street bankers have put us through in the past couple of years, THAT IS ALL THAT WE WANT for now, and than we may want to take it up a notch and start talking about providing expansion loans to well-run, experienced, new economy companies to get this economy back on track.

After all Capitalism creates Wealth, nothing else does, and one cannot redistribute what does not exist.

290,000 Jobs More Still Increases Unemployment

The Dollar and Labor Markets under Pressure

The April numbers are in and they are adding to the discomfort and fear among working America.
Even though employers added 290,000 jobs to the labor market in April, the official jobless rate moved up to 9.9% average across the country.
America’s businesses need to add on average 135,000 jobs each month just to keep up with population growth. In the months of April, May and June each year, when springtime comes along and graduates leave school these numbers get skewed a lot, even to the point where adding 290,000 jobs is not enough to prevent a 0.2% jump of unemployment.

If we add the crushing fact that 1 out of 5 men between 25 and 54 is officially not working and that a lot of jobs that were once performed by these men will not come back, especially not in fields of construction, outsourced or automated office and factory work and unskilled labor, we are looking at political dilemmas that will turn this nation from capitalistic to a form of socialism.

A lot of the current unemployment is both structural and the result of a natural degression in human behavior exposed to too much luxury. Wall Street Journal last week actually published a story on employment versus unemployment where it said: ” Another option is on the demand side: Force employers to be less efficient so they have to hire more, or limit imports of goods that threaten jobs of less educated, prime-wage men — solutions with unwelcome side effects.”  Our way back to full service gas stations and ushers!!!

No excuse nor outrage over this statement however. The lowest common denominator has apparently been accepted as a viable answer to the unemployment issue and now we are all supposed to cater to a government supported mediocrity.

As official representative of the White House’s take on this approach, Obama’s personal adviser Larry Summers said that the government can increase demand for labor in the short run. Spending more public money on infrastructure, he argues, will both strengthen the economy for the future and employ out-of-work construction workers. More of the same insanity that is killing the value of the dollar and is sending the nation off in the wrong direction.

America’s strength lies in innovations.

If America can emphasize and encourage technology, especially in energy, medicine, and computation/communication, that’s salvation of humanity – and not just the U.S. That’s the wave of the future we should invest in. America also has the best food producing technology in the world, which will be needed for the next decades.

But in contrast, if the government focuses on building bridges and roads we don’t really need, with money we don’t really have, just to prolong the myth of creating short term employment, we won’t be any better off. Investing in technological innovation and energy saving is the way to go.
Two Alternative Options

To be fair, two alternative options were included in the article’s line up, whereby one suggested to exchange or eliminate the kind of work that is not in demand, for better skilled workers that are needed, hence improved education. Duh? And the third option tabled brought me to the conclusion that it’s time for me to look at exit opportunities as this option clears the way to arbitrarily tax the winners to subsidize the losers.

If that becomes the case here in the States based on the current political and socio-economic realities, we will have surpassed Europe’s benevolent socialism by light years.

Higher Interest Rates Will Choke the Economy

Higher Interest too soon will cause stagflation

OK, before you think I have lost my mind completely, allow me to explain the good and the bad..  It now seems the Fed has made a decision to raise interest rates, now that is the bad news.  Once interest rates begin to rise we will see the economy sink even further, people will have problems trying to meet their monthly expenses.  Credit card bills, adjustable rate mortgages, car loans, mortgage loans all will be higher with each rate increase.

Now for those few who still have a savings account it may be good news as they may finally get a couple of percentage points on their money.  But in general we can easily say that if we couple higher interest rates with increasing gas prices we will now have the perfect formula for another blow to the economy. Can it be avoided. NO. It’s a natural occurrence between economic power trains. The moment the economy starts moving into the positive (and growth of GDP, no matter how this is achieved in current economic terms) the interest rate brake will be loosely applied. If the economy grows to fast, interests rates are the only mechanism available to cool it off…unless of course we start allowing over the top leveraged financial packages to become part of GDP.

OK so that’s the bad news, now for the good news in all of this.  The Fed also announced they would only raise interest rates if unemployment fell.  So if jobs are being created and the unemployment numbers come down we can all expect to start paying more?  I will be the first to admit that we must do something about the ever increasing unemployment numbers, and as a real estate man I don’t see that happening until the housing market is under control and the foreclosures start decreasing.  Now if we see a rate hike then we are bound to see more foreclosures due to the higher monthly payment for those on an adjustable rate mortgage.  Not to mention a lack in sales of pre-existing homes because buyers, who are now on the edge of qualifying will not be able to purchase simply because they can no longer afford to. And that might just be the deeper intention of it all.

Once again, I see Washington doing something; what I’m not really sure of, but that’s OK because I don’t believe they know what they’re doing either. Up, down, left, right, it really doesn’t matter too much at this stage as the bottom of the barrel is getting visible.

Washington Mathematics Scare Me

Washington Mathematics are Dangerous

Sunday’s are the only days I allow myself to wake up without a clearly outlined plan of attack. The house is quiet until later in the morning and I move between laptop and desktop to research what the world is up to. Sometimes this unstructured approach takes me to potentially strange and awkward thought processes and here is one I need to share with you.

I was reading the very consumer friendly Cash for Clunker Appliances initiative that went into motion a week or so ago and I must admit that anyone who needs to replace their rusty old appliances should have taken advantage of this fabulous offer. (Florida’s budget for this program is already exhausted).
Yet…at he same time I thought about the Cash for Clunker Automobile Program that was offered a while back by a government that does not shy away from using tax dollars on micro give-aways to the detriment of the macro economy.

Even though I always instinctively felt there was something wrong with these Cash for Clunkers stimulus packages, I never found the time to further analyze the numbers versus the objectives. In a time when yesterday’s news is no longer relevant, we don’t seem to want to learn from our mistakes. Well this morning became the victim of my thoughts on Washington and its unbridled need for short term action that supersedes long term fiscal responsibility.

The Cash for Clunkers program was presented as an opportunity to get old, inefficient, environment damaging, gas guzzling vehicles of the American Roads, by offering its owners a sizable cash rebate if they turned their clunkers in for newer more economical and less polluting vehicles. Politically the program was sold on many levels, but most importantly creating a soft landing for a dying car manufacturing industry and a hard push for the environment and the fuel efficiency factor.

When the final numbers came in (and even these are questioned by insiders) the objective to recharge the US automobile manufacturing was sorely missed. From the 690,114 clunkers traded in, the top ten brands were all US made vehicles.  However the cars these clunkers were traded in for, were 8 out of 10 Japanese or Korean.

Even if these numbers seem to have been “massaged” before publication as insiders claim,  it is clear that Americans didn’t see the US car industry as a particularly viable one.
Oh and by the way, numbers explain that out of the 690,000 vehicles that were part of the exchange, only 125,000 were incremental, meaning sales -over and above the normal- because of the program. The other sales would have happened anyway.

Now the next calculation concerns the second objective of fuel efficiency and energy savings.
The average fuel saved between the clunker and the newbie was calculated at 9.1 mpg by automobile tracking organizations like

•  A clunker that travels 12,000 miles a year at 15 mpg uses 800 gallons of gas a year.
•  A vehicle that travels 12,000 miles a year at 24 mpg uses 500 gallons a year.

Conclusion, the average Cash for Clunkers transaction will reduce US gasoline consumption by 300 gallons per year per car. The program included 690,000 vehicles, which calculates to 207 million gallons saved per year.
Now this may sound like a large number to some of you, but at 19.5 gallons of 87 octane gasoline produced from a 42 gallon barrel of crude oil, that annual gasoline saving in total volume equates to a bit over 10.6 million barrels of oil or about 10 hours worth of US consumption.

What’s more, 10.6 million barrels of oil at $80 per barrel costs about $848 million dollars, while the government paid out more than $3 billion in tax dollars for the program.(including administrative expenses).

Now before people start writing that I calculate wrong and that there is a more diverse revenue stream coming from a barrel of crude and that I’m allocating the $ 3 billion to a one year car operation, while these new automobiles can operate more efficiently on a longer term basis, potentially saving an amount of $848 million in gasoline cost per year for several years, the numbers are still wrong for any type of tax dollar investment if inflation and fluctuation of oil pricing is introduced to the equation. No matter how you look at it, it’s going to take almost 4 years for those 690,000 cars to break even on the $3 billion in tax dollars invested. And that would have been better spent on small business financing.

My beef is not with the necessity for the Federal Government to spend tax dollars in economic downturns as that is one of the few tools available to turn the economy around, lacking consumer and business spending.
My beef is with the manipulative reasoning behind the clunker programs: saving energy and the environment. Saving the environment is a populist mindset, which cannot be accomplished with hand-outs for good behavior.
A simple exit survey would have revealed that 690,000 Americans would have held on to their clunkers, if it had not been a mandatory condition of money exchange in the program. Most Americans still like their gas guzzlers, their credit spending and oversized McMansions, which is primarily the reason why this recession is not over yet.

My beef is also with the haphazardness of stimulus programs. On average we go through an economic downturn every 7 to 10 years. We have massive computers that can crunch all the figures we need to determine the most successful, less costly stimulus programs in our arsenal by region, state or demographics, based in historic analysis and updated scenarios. I cannot help but think that we have more means and ways available to pick from a line up of choices than ever before. We have bailout and stimulus mechanisms that if activated timely can quickly turn around the effects of mistakes; financially, economically and even socially, at a maximum speed and efficiency.

But we need the political will to apply these measures and mechanisms and that’s when I start wondering in how far all these calculations are skewed or ignored by purely shortsighted and territorial interests.
From an economic point of view, Washington mathematics are scary.

Case in point, while the White House is gearing up to attack the big Financial Institutions with long overdue regulations, the FDIC has per last Friday shut down 57 banks in 2010. The large majority of these banks’ assets are being taken over by other banks, who now get closer to that elite group that is baptized “too large to fail”, mostly at the tax payer’s expense. In the whole of 2007, only 3 banks nationwide were shut down; was the FDIC asleep at the wheel then….?

Oh and another point of mathematics in Washington.

Lately I see this Mr. Whitacre, the CEO of General Motors proudly announcing that GM has paid its bailout money to the government; all $5.8 billion of it! Well the other $46 billion that were needed to prevent GM from faltering were turned into shares of the company. So now we, the people own 60% of GM. Whoopee!
How did GM even get the money to pay back this $5.8 billion, certainly not out of car sales, as the clunker program already showed clearly that no GM model was even among the 10 most wanted new cars.

Here is how: Some of you may remember that fateful Christmas Eve in 2008 when Fox and NBC supersized the panic and fear that overtook the Nation. On that day GMAC became mandated by the Federal Reserve to operate as a retail bank. So did by the way Goldman Sachs, Morgan Stanley and the rest of the thieves. This approval however gave GMAC access to the Fed’s 0-0.25% cheap money pipe line.

GMAC’s website says the following about that occasion:

GMAC is a global financial services company that was founded in 1919. Initially formed to provide automotive finance products and services to General Motors dealers and clients, GMAC has since expanded its business to include mortgage operations, insurance, commercial finance and online banking.

Until 2006, GMAC was a wholly owned subsidiary of GM. On Nov. 30, 2006, GMAC began a new era as an independent finance company when GM sold a 51 percent stake in the company to a group of investors led by Cerberus Capital Management, L.P.

Dec. 24, 2008 was a key turning point in GMAC’s history when it was approved as a bank holding company by the Federal Reserve Board under the Bank Holding Company Act.

Another defining moment for the company was when GMAC entered into an agreement with Chrysler in April 2009 to provide auto finance products and services to Chrysler dealers and customers. This allowed GMAC to leverage its core strength of auto financing and become part of a solution with the U.S. government to restructure the auto industry.

In May 2009, GMAC’s ownership structure was amended again when GM and Cerberus significantly reduced their holdings in GMAC, leading to future diversity in the ownership structure of the company.

Before this date GM owned 49% of GMAC but by December 31, 2009, the US Government – we, the people, – owned 56.4% of GMAC and GM and GM Trust, only 16.6%. Let’s see, having access to the Fed’ Cheap Money Trough and needing to survive in an ever more competitive marketplace, GM through its financial and corporate cultural ties with GMAC, General Motors had a chance to take a deep breath and restructure and reorganize. It seems that they cut deeply with the past and left many victims, employees and retirees on the battlefield.

The GMAC’s website also stated “As of Dec. 31, 2009, GMAC had approximately $172 billion in assets, with 15 million customers worldwide.” Technically this means that the majority owner, the US Government, with 56.4% of the shares, could be held liable to an undisclosed number of foreign policy holders, in the event of a claim, while potentially importing inflation through the collection of premiums and payments in foreign currencies.

And that my dear readers is called satisfying short term mathematical urges defying the old wisdom of “an ounce of prevention is better than a pound of cure”.
The price for “too big to fail” may haunt us for generations to come.

Canaries in the Coal Mine

Tiny Tim and the Singing Canaries

Lately I have been hearing that expression a lot. I have intimated in the past that I grew up in the coalmine hills of Holland where my dad was a financial controller for the Dutch State Mines. In the 1950s we even had canaries at home, although dad never went down in the mines.  For those of you not familiar with the expression:  Early coal mines did not feature ventilation systems, so miners would routinely bring a caged canary into new coal seams. Canaries are especially sensitive to methane and carbon monoxide, which made them ideal for detecting any dangerous gas build-up. As long as the canary in a coal mine kept singing, the miners knew their air supply was safe. A dead canary in a coal mine signaled an immediate evacuation.

These days the expression is used for about any situation that requires non wavering attention as we plan to avoid disaster, while the variety of symptoms are so easily overlooked.
The Global Economy for example has a flock of canaries currently still whistling a tune, but maybe not for long. Countries such as Greece and Dubai, followed by Italy, Ireland or even on this side of the Atlantic.

It’s the Number Fabrication Again

“Official” numbers again and again are heralding how the consumer is proving to be the upside surprise for the first quarter of this year. Many media and economists are calling for 4.0% real PCE growth, which would indeed be impressive, if not for the following canaries in the coal mines:
• organic wage and salary income is still on a downward path.
• the consumer is fuelling the spending pickup via a renewed decline in the savings rate, to near-depleted levels of 3%, which is what we would dub a “low quality” recovery.
• Tax refunds are up double digits from a year ago, which is a non- recurring source of support as well.
• at least six million American households are no longer paying their mortgage and are living for free in their home because the banks don’t want to evict them and become a reluctant landlord or have to bite the bullet and write down the value of the property on their books.  Right there we have a situation where at least $100 billion of consumer cash flow that has been freed up for fun and games in the name of strategic mortgage defaults.

Don’t forget the 700,000 cars that were in the cash for clunkers stimulus program as well as the current cash for clunker appliances program and the first time home buyer allowance all make the regular market forces artificial and give a skewed number picture.

As a result any of these canaries can at any time drop dead in their cage and that fact alone can hardly be called a sustainable underpinning of a longterm recovery and worse, hardly a positive force for banking-sector interest income. Goldman Sachs is a canary the size of a condor or better yet Albatros, a millstone around the neck of a warped financial system that is looking at a complete regulatory overhaul, even though the White House intentions are somewhat half hearted at this point.

Yes the canaries have seemingly bought us a little time, but I think it’s the work of a magician replacing dead birds for live ones, when we are momentarily distracted. These are breathing spaces created out of thin air. How poisonous that air really is, will be revealed when canaries start suffocating.

And having said that, I think using the expression this way is actually riddled by optimism as another part of the ideology implies that canaries being used as unwitting subjects to test the potential risk, solely for the benefit of others. The Goldman Sachs case might just point a finger into the direction of the mine’s exit.

More and More Jobs Leave Our Shores

Anyone on the float for Cuba?

Have you ever purchased a new computer or other piece of high tech equipment and at some point find yourself stuck in the operation of the unit?  I have, many times.  Now most men will not admit that they are stuck, in fact I know some who would rather do damage to the unit trying to resolve the problem then ask for help, because asking for help means admitting they are stuck.  I am not like that, I am one of those that if I can’t figure it out and can’t get my grandson to come help, I get on the phone and beg and plead for help.  I will admit in a heart beat I’m stuck, no shame here.

How about when you pick up the phone to make that call and you suddenly realize you are in another country. Somehow the tone of English is different and you think of that “It’s a Beautiful Day” album and the song “Bombay Calling”. That was late 1960s and times were quite different and Bombay had not changed to Mumbai yet. Then it hits you that the company you are supposedly calling has outsourced their customer service to a foreign country.  I usually get a little angry or at least impatient because I would rather see these jobs staying here at home.  After all, it is usually an American company you just gave your hard earned money to for the product, why can’t they keep this money here at home? Well of course I know that I’m living in the past, but still….

I know what the answer is and so do you, profits.  Now there is nothing wrong with profits, we all know that the labor cost of doing business abroad is often cheaper then it is here at home.  So while some companies are showing profits we continue to see our unemployment numbers rise.  I also know that there are US companies that are still in existence because they shifted workload to a place with cheaper or better structures. In the global free enterprise system there is nothing that can be done to stop this practice. However, it still bothers me though.

I was reading an article just yesterday about our space program.  If you didn’t already know the space shuttle program is on it’s way out, there are only a few more flights left for the shuttle.  Of course the shuttle was used primarily for trucking trips to the space station to change out personnel, deliver supplies and make repairs. True, it was a bit expensive at $60 to $100 million per launch and it didn’t do too much for Space Exploration persé and it was an example of America living high on the hog.  So what will happen to Kennedy Space Center when the shuttle is no longer being used.

I actually thought, just for a second, that a private American company would take over those duties, or even Richard Branson with Virgin Galactic.  Wrong.  We are going to out source this service to Russia.  You read it right, Russia.  Now what will happen to all the folks that are employed by NASA due to the shuttle program?  Don’t worry about them, they will be eligible for unemployment and maybe one day the next program will start again, but by that time the cream of the crop Tech junkies will be gone too. China, India, Russia, Guyana, Japan or Europe.

Hmmmmmm, I wonder, could we not out source our unemployment responsibility ?

The Call Came in around 9:45pm

Wall Street's Cards are Marked

The call came in around 9:45 last night as we were just settling in with a glass of wine to finish off the evening. Earlier we had a great get together with some 30 members of the newly formed European American Business Club here on Amelia Island. I’ll report on that separately. The call was from a reader in Jacksonville who just had finished my article “Why CSX’s First Quarter numbers did not necessarily spell an economic recovery”.

While I was still in awe that someone would actually call me, I realized that SearchAmelia is reaching maturity and real impact. A day earlier I had received an email from the Audience Development and Social Media Dept. at in New York offering story exchanges; we are actively exchanging communications with departments in CNN, NBC and ABC as well as a diverse range of globally operating companies who have us on their watchlist. It’s exciting to know how far we have come in less than 2 years and now rank in the top 0.5% of global websites while still climbing daily on all fronts from page views to time spent on the website. All statistics of course but important to gauge whether we’re inline with our objectives or need to re-focus.

The callers question last night was proof (at least for me) that we are providing a much needed service, whether it concerns announcing and spreading the news about events and happenings, outlining the importance of supporting local businesses, or give the best possible truth of where the economy stands. The question was: Why do you say that the Stock market passing 11,000 does not mean that the economy is rebounding strongly?

Well besides the fact that it is a given reality that the market operates at about one quarter of its pre-recession levels, which indicates low confidence among traders and investors, this 25% level is in addition masked by some artificial trading initiated by Wall Street itself.

• First there is the pumping up of the trading volumes through high frequency trading. Without going into the technicalities, you have to realize that high frequency trading is NOT investing. It’s mathematics and algorythms (like Google uses for rankings) Computers scan and find statistical patterns and pricing weirdness in stocks on many exchanges and send profit opportunities to institutional traders who use super fast computers to make trades in a fraction of a second, often re-traded seconds later for profit. Estimates are that high frequency trading accounts for about 73% of all equity trading these days, versus 30% four years ago. High frequency trading adds exponentially to the perceived volume, further enforced by the reality that at this point in 2010, the volume compared to the same period in dismal 2009 is down 25%.

• Secondly there are the Exchange Traded Funds which carry substantial profit opportunities for the insiders who act as custodians of ETF units they create. ETF’s are complicated portfolios of a wide range of stocks representing futures, customized  contracts, derivatives and other types of financial instruments. Participants in the process of creating ETF’s are allowed to trade both the ETF as well as all the underlying assets of the ETF. The margins per share are usually small but it’s risk free and when the players are the huge institutional players such as Goldman Sachs and Morgan Stanley, who can execute these trades of ETF’s and the underlying assets many times a day between markets, the profits are massive.
In addition it gives the impression that the volume is there to lure small retail investors with the message that it is save to get back into the market.

Even though I tried to keep this dissertation as simple as possible, and believe me there is much much more to it, the bottom line is that Wall Street numbers are severely skewed.
Conventional wisdom says that markets rallying on thin volume are very dangerous for retail investors. Time will tell, but for now Wall Street is just a hoax that tries to lure retail investors to jump back in the game.

Mortgages are Forcing Severe Cutbacks

Even "mobil" homes are under water

More then two thirds of homeowners who have been trying to sell their homes are now starting to severely cut back on food, clothes, medical and entertainment in order to pay their mortgages.  Many sellers are on the market because of the economy and they want to down size into a more affordable home, but with the market hardly moving at all, there is very little choice for these owners: either walk away or cut back and while many are done trying to cut back and now simply walk away, others are in the phase of severely cutting back on expenses.

Wall Street is crowing with pleasure about the Dow breaking the 11,000 barrier, Washington is walking around like a Peacock in heat, but Main Street is wondering: “When will this market pick up”?
This is a question that I am asked no less then twenty to thirty times per week.  In my opinion it will not pick up until the unemployment numbers come way down and that, as even Washington admits, is not likely going to happen for a long while yet.  Estimated projections are at 8% for the end of 2012. We must remember the main engine that produces jobs is not the large corporations but rather the small mom and pop businesses across this nation.  And this is the very segment that is still in the process of closing their doors because they can’t make it and there is no help from the banks to bridge until the “good times roll again”.

In the mean time the value of homes continues to fall.  Florida is now leading the nation in the percentage of mortgages that are behind in their payments with almost 1 out of 4 and this number grows daily. Nevada is right behind us and distant third is Mississippi. It usually is not too difficult for home owners to make a mortgage payment, all that is needed is a paycheck.  Until our “friends” in Washington realize that this is what it’s going to take, I think we are in for a long, long ride.

According to a recent real estate report, interest in purchasing an investment property is up over last year but investors are still waiting to see what is going to happen to the economy. In addition there is still belief that prices, at least in certain areas are going to fall even more.  Wether investors are waiting on the economy to really turn or believing the evening news euphoria, in the meantime you and I are  loosing value daily. And when government incentives for first time buyers run out by the end of this month, hopefully investors will step in, because if not…it’ll be a long hot summer, the third one in a row.

As Layer after Layer Gets Peeled Off

1932 Several Generations Vying for Same Jobs

You undoubtedly know by now that the U.S. economy added 164,000 jobs in March. Everyone and his grandma between Wall Street and Washington has demanded media time to tell you about it. And while that was the best number in ages, anyone who looked closely at the payroll report issued by the U.S. Labor Department would discover that it was actually riddled with problems.

Indeed, that report sends a very clear message: While it is consistent with a gradually improving labor market, the numbers hardly convey a sense of an economy that’s zooming its way back to health. For starters, the US needs to add about 135,000 jobs a month just to keep up with the population growth.

In a couple of weeks there will be another layer added to the job search as high schools and colleges open the gates of newly graduated young adults looking for jobs and many of these students know that unemployment has not fallen uniformly across the American economy—particularly hard hit have been middle-aged men, young black men and people in their 20s. The prospects for college and university graduates over the next few years are dimmer than they have been in years, and the number of job seekers will only grow, adding further pressure to the economic recovery. In addition, over the past two years, institutions of higher education in the United States have welcomed the two largest matriculating classes in history, which means that in four or five years, even as we climb back to positive rates of job creation, we will have a flood of new labor market entrants looking for jobs.

Entrepreneurship is the Source of US Labor Growth

As policy makers are introducing all sorts of ideas, from a payroll tax exemption for those companies that hire currently unemployed workers to more federal funding for green industries and infra structural construction, these and other ideas fail to address what has always been the primary source of new American jobs: entrepreneurship. New companies have historically been the engine of economic growth, producing innovative products and services and accounting for nearly all net job creation.

I’m with my friend Nick D. when he says we need to focus on small business development. There are typically some 500,000 new firms on average seeing the light every year, regardless of boom or bust in the economy. In current times there is another trend for many to move to self employment in larger numbers than before, mainly as a result of the internet developments. Yet there are no overall policy structures in place to support these trends to serving niche markets.

Entrepreneurship is a phenomenon not totally understood by economists and policy makers and therefore lack any programming beyond generalizations. The self-employed, the nonemployer firms, and the employer firms all exhibit different characteristics in terms of their products and services and their ambitions for growth. Entrepreneurs also differ greatly by sector: a software entrepreneur will have different interests and incentives than a restaurant entrepreneur or small distribution company.

However the numbers indicate that new companies create a vastly disproportionate share of new jobs in the United States and account for an outstanding share of breakthrough innovations. The message for policy makers at all levels of government and banking seems crystal clear: for more new jobs, we need more entrepreneurs. We can see this trend exposed daily right here on Amelia Island when we interview new entrepreneurs and talk with others during our free internet lectures. The employment growth for many of these new firms would multiply if they could get access to affordable capital, rather than trying to finance the innovations out of their savings or cashflow.

The Economy is Floating in a Pool of Confusion

St. Regis was pushed into Bankruptcy by AIG's arrogance

Every columnist with a regular publishing outlet has a pool of potential stories to research and write about and I’m no exception.

In today’s digital tickle file I had a story in preparation on the decline of luxury resorts, initiated several weeks back when I read about the demise of the Ritz Carlton Lake Las Vegas and I vividly remember Ritz’s spokesperson Vivian Deuschl saying: “It’s nothing the hotel did. It’s a simple lack of business and a decline in the tourism industry.” 
 The hotel that boasts of its retail boutiques, gondola rides and wedding chapel suffered a backlash from the so-called ‘AIG effect, referring to the upheaval caused by American Insurance Group’s brazenly arrogant decision to fly top brokers and executives to a luxury resort soon after receiving an $85 billion bailout check from the US taxpayers. As a fall out consequence the Lake Las Vegas Ritz is slated to close on May 2nd.

Than less than 2 weeks ago I received a depressing story about Caribbean Luxury boutique hotels never to open again and the “fear” that $1,000 room rates a night will be a thing of the past. Well having spent more than 2 decades in the Caribbean Islands with very frequent visits to opulent luxury on the islands of St. Barth and Anguilla and occasional visits to mega luxury on Richard Branson’s Necker Island in the British Virgins, I knew that this Travel Weekly story completely ignored human behavior.

The Magic of Lent?

So with a rather sober look at luxury travel I was getting ready to write the story when this morning I open my inbox and guess what, here is Simon Cooper, president of Ritz Carlton Hotels exclaiming that luxury is coming back quicker than the rest of the hotel segments and that rates are going to start moving up (already). The story is followed by numbers, statistics and quotes from executives in the luxury brands such as St.Regis and the Phoenician, stating that demand is back up for luxury and Starwood’s flagship property, the St.Regis in New York sees demands back up to levels last seen in December 2007! Did that peek my interest. I betcha.

So what’s going on? Shift of Focus?

Are we in a recovery…is the worst behind us and are we looking at fair winds and smooth sailing from here on?
Well like in any of these hopeful stories of optimism and godspeed, the warning is in the tail end when Ritz’s President Cooper becomes more realistic:”Things are starting to pick up, but it’s certainly going to be a long, protracted valley.”

He should have added to that statement “Here in the US”, as Ritz Carlton and other top brands are aggressively pursuing opportunities in the hotel building boom that began in Asia and the Middle East before the bust. “China is very hot”, says Cooper, “and despite its ups and downs, the Middle East clientele continues to spend money looking for great locations,” adding that the conversion of the Nile Hilton in Cairo to a Ritz-Carlton will take two years.

Paul James, global brand leader for Starwood, sees conversions as the best opportunity for the Luxury Collection, as Starwood recently signed two properties in China to its Luxury Collection: The Astor Hotel is scheduled to open as a Luxury Collection Hotel in May after a $22 million renovation, and the Malus Sanya, a Luxury Collection Resort, is a newbuild resort set to open in late 2012.

So what did really happen to the Luxury Resort Segment in recent years?

1. When the economic bubble went bust, luxury travel took a hit, just like any travel spending, but the AIG effect really took the market to the cleaner’s. Cancellations across the nation were the instant backlash, resulting in bankruptcies and foreclosures of well positioned luxury properties such as the Fontainebleau in Las Vegas, Gansevoort in Miami Beach, W Hotels in San Diego, the Ritz in Lake Las Vegas as within days and weeks of AIG’s abberation these hotels experienced double-digit drops in occupancy, setting off fire sales on rates that most experts agree will take the hotels years to recover from. The foreclosure of the St. Regis Monarch Beach in Laguna Niguel, the hotel that hosted the now infamous meeting by AIG just after the company received billions of dollars in a federal bailout funds, sums up best what happened. Ostentatious behavior was out of vogue for a while.

2. Secondly there were a lot of luxury resorts that were developed in tandem with condo-hotels, which in the bubble days was the preferred way of financing luxury projects for developers. When it all crashed and credit crunched, these condo hotels pulled down some of the luxury resorts they were attached to, as was the case with for example Gansevoort South Beach.

3. It has been said before that there HAS TO BE a recovery effect when the Government puts a couple of Trillion Dollars into restarting the economy. Well we’re right at the predicted point in time when this was supposed to happen – Spring 2010. Even the travel industry’s top dog economist, Dr. Bernard Baumohl stated a couple of weeks ago that April would be the turning point for employment growth. The potential problem is that only time will tell if those trillions ended up in the engines of the economy or are evaporating as spillage while pushing up inflation.

4. The media keep focusing on the fact that Wall Street is doing a crazy bull rally over the past 12 months, so everything has to be back on the up and up. But what they don’t tell you however is that the VOLUME of trading on Wall Street is less than 40% of what is called NORMAL. So yes, there are still a substantial number of people with money out there and they are getting restless as their lifestyles of opulence and gambling have been subdued for way too long, as they feel it.

Luxury Travel is a Niche Market not an Economic Indicator

No surprise also that the occupancy numbers in luxury resorts are going up, no surprise either if rates will go up soon. There are only 442 luxury projects GLOBALLY in the pipeline of this niche market of the super wealthy, of which 276 in Asia and the Middle East. The same as with Wall Street, only the super rich are playing, because they are bored sitting around.
There are still some 800 known billionaires in the world and in the US alone 2009 registered 7.8 million millionaires. As an example in Belgium, a small country of 10 million, 1 out of every 7 families are millionaires.
Here at home it also means that even if unemployment would be 15%,  85% still would bring home a paycheck and a number of those bring home a hefty paycheck.

The economy is binary

Our economy is binary, or at least used to be when it was based on the philosophy of Capitalism. In general macro economic terms that means if total supply meets total demand, life is in the balance. The meltdown of 2008 happened because the pendulum had swung too far out of balance, which was allowed by a system that allowed pipe dreams without making allowances to pay the piper. In that economic climate the “weakest” players get eliminated. Now mind you, that doesn’t mean that these players were not good business people. Their industry may have just experienced the perfect lay out for the perfect storm and like Ritz Carlton’s spokes person said about the closing of its Lake Las Vegas property: “It’s nothing the hotel did or didn’t do”.

Economic Confusion

I’ll be much more optimistic about short term real recovery if Ritz Carlton decides to keep its property in Lake Las Vegas open on May 2nd and parent company Marriott decides to keep the Sawgrass Marriott open, but I don’t hold my breath as industry insiders point out that some 30% of hotel loans could default by 2012.  Unlikely however, since banks don’t want those assets because if they take them over, they not only pay for operating losses but they also have to pay all the capital expenditures. Instead they will keep most of them on their balance sheet as assets of questionable value.

Economic confusion will continue a while longer and we will not know for some time if government stimulus and bailout restarted the engine or just kicked the can of misery down the road; it’s just that the well heeled ones are getting restless and that the media interpret that as the beginning of the rebound.

As I said before, the economy will not really recover until people have confidence that their jobs are safe, more jobs are being created and there is a realistic expectation of salary increase for the future.

Even Churches Are Touched by the Recession

Church Buildings need maintenance, even in bad times

There are many who are praying that things will get better concerning our economy, and soon.  There are those who have not attended church in many years, yet are now going.  It’s bit like networking the shrinking opportunities. Personally I see nothing wrong with this, as I think prayer is a good thing.  Of course, I don’t think people should wait until things get so bad they feel as though they have no place to turn to before they start praying or attending church.

But where do Churches go when things go bad?

Where do the churches go when financial times turn against them?  The overhead for building, people and services is still there every month.

For the past two years churches have seen a constant decline in contributions due to the economy.  It seems the the mega churches have been hit the hardest as of course they have the largest overhead to contend with.  But even the small churches are feeling the pinch, especially when it comes to maintaining their buildings.

Church members turn to the Church in times of need for moral and financial support.  It is in these times of need though that Churches have less financial space and often resort to fundraisers and Yard Sales to collect much needed extra cash.  It seems that this recession has touched almost everyone, even the collection plates on Sunday.

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