Wednesday, December 9, 2009

Don't Count Your Chickens.........

While just a few days ago, Obama was taking bows (as opposed to performing bows) because the November unemployment numbers fell to a mere 11,000 and the overall unemployment rate fell to 10% from 10.2%. HE proclaimed that the economy was at least signaling that it was starting to move in the right direction.

Not so fast! I am shocked that I have not heard one analyst or one report that even hints or suggests that November might be an anomaly due to the Holiday effect. What's the Holiday effect? Well, in business, October is usually where next year's budget gets final approval, and you have a good idea how the fourth quarter is going to turn out. Sometimes you'll see spates of layoff's in October to adjust the bottom line and make the numbers look good or at least better at year end. But after that most companies are on cruise control and don't execute any huge new initiatives. Especially not lay-offs. Nobody wants to be the grinch that ruined Thanksgiving or Christmas. That's what you saw in 2008. Even though the sky had started to fall, and you might have noticed the rise in unemployment, but then, nothing really happened until January. Beware the ides of January! You can expect a negligible number for unemployment in December. Possibly even better looking than Novembers mild numbers.

We won't really know the direction of the economy until the January unemployment numbers come out. January will indicate if the 2010 budgets that were planned and approved in October, are suggesting that businesses are executing growth strategies or not.

However, you should not count your chickens before they are hatched! Remember that the 2010 budgets were finalized in October. Remember that businesses even today still have the question marks regarding Health Care reform, as well as Cap & Tax. With the looming uncertainty of what these government programs will mean to the bottom line, expect companies to sit on their cash or delay the execution of growth strategies until the political issues are solved and the can crunch the numbers and determine the implications to their budgets.

Meanwhile, the President went on TV today to essentially suggest "See! Spending is working! The jobless numbers are starting in the right direction, and it is because the stimulus is beging to work!".

Obama urges major new stimulus, jobs spending

Obama said the U.S. must continue to "spend our way out of this recession" as long as so many people are out of work.
Never mind that this is not what business wants to here, unless of course you own a construction business and you have a friend who happens to hold political office. Business knows that they will be paying for further transfers in wealth with taxes.

Never mind that banks do not want to hear this. Even though many of them were bailed out by the government, they know a train wreck when they see one. Was it irresponsible of them to lend to people they figured couldn't pay the loans back? Sure, but they were government backed loans and Barney Frank really liked to see low income people get homes they could not afford. But, they are not totally stupid! There is no-one to back the loans made by the government if it starts to look like they might not be able to repay loans (See Dubai).

Moody's Warns U.S. Could Lose Triple-A Rating

Losing your triple A rating is like missing a payment on your credit card and watching the interest rate go from 6% to 23%. It costs you a lot of money.
blog comments powered by Disqus