Climbing Up A Greasy Pole

Historically, stock markets climb ahead of an economic recovery and, applying that logic, the recent climb in the various stock market indices should point towards a recovery in the US economy in the not too distant future. However, hope can trick us into seeing things that are not there – like a mirage of an oasis in the desert.

Remember, all stock markets are pretty much like casinos – calculate your odds, place your bets and hope that you will come out a winner. Investment experts and stock analysts who will tell you anything you want to hear – we get to watch them pitch their thoughts daily on CNBC or Fox Business News – take everything they say with a good pinch of salt. They are masters of using obscure language that could be interpreted to mean different things to different people at different times. If they were such ‘experts’ how did they all (with possibly a few exception) fail to forewarn investors of the near collapse of the financial industry?

Unless the authorities come up with the right solutions, an economic recovery from this downturn will be painful and long, like trying to climb up a greasy pole.

Continuing trends that hamper recovery or indicate that all is not well:

• Oil prices have crept above the $70 mark – we’re halfway back to the peak reached in July 2008, more than double the lows in the mid-$30’s that it hit in December 2008 and again in March of 2009. Consequently, average regular grade gasoline prices nationwide have climbed from under $1.60 a gallon in December 2008 to over $2.60 in June 2009 – that is a 62% increase – while the recession is still deepening. Speculative investors in oil are back and that is bad for recovery.
• Unemployment has continued to climb although the pace appears to show signs of slowing. It will take a solid few months after the trend reverses for consumers to even begin to regain confidence enough to spend on things other than necessities.
• Despite the all-time low interest rates, credit is still tight and consumer patterns are changing as they veer towards a higher rate of savings (if they still have a job) from the glory days of spending what they did not possess or have not earned.
• State, local and regional governments are scrambling to compensate for shortfall in tax revenues by cutting services or increasing tax rates, both of which will hurt the average consumers even more, driving them to spend even less on non-essentials and sometimes cutting into even the essentials.
• Dysfunctional state governments such as those in California and New York (numbers 1 and 3 in terms of the size of their GDP in relation to the overall GDP of the US) will further hamper the speed of recovery as necessary budgets and laws are not passed.
• Five months after its passage in Congress, only a small fraction of the money from the $789 billion stimulus package has hit the ground and promised spending on infrastructure will take a while yet to come on-stream to have any visible impact on the unemployment numbers. As of July 16, only $183 billion has been allocated to state agencies and, of that, only $63 billion has been spent (source: Recovery.gov) - less than 10% of the total stimulus passed.
• To make matters worse, some states will not be getting the stimulus money as Republican governors in those states have rejected the stimulus funds (source: Fox News. com).
• The TARP money that was used for bailing out the failing financial institutions and automotive giants only helped to stabilize the system but will not generate new jobs, income or consumer spending.

The administration has done well to stabilize the situation but it must quickly move towards actions that will stimulate the economy in the right way. Interestingly, a guest on CNBC on the morning of July 7 highlighted the way the Chinese government has succeeded in stimulating its economy and they way they have done it reminded me of the idea I posted on my blog back in December 2008 titled “To B or Not to B”.

The US needs to stimulate consumption but giving away money, whether directly or via tax breaks, is not going to do the trick in the current environment. A more cautious population will simply stash the money away in fear of a deeper and longer recession. Time to focus on ideas and actions that will pull us out of this hole.

The Economy is Bad – So Beware!!

Yes, we already know the economy is in a poor shape – we hear or read about jobs lost or shops and factories closing with a frightening frequency. Based on what is counted alone, unemployment has reached 8.1 percent in February 2009 and the trend is not encouraging. A total of 12.5 million people are unemployed, an increase of 5.0 million in the last twelve months alone (source: US Dept of Labor - http://www.bls.gov/news.release/empsit.nr0.htm).

We are so inundated by the endless streams of bad news that some among us would like to tune it out altogether, especially if it has not impacted us in a direct way. We’d go crazy with fear if we gave in to the media’s relentless drive to get the same bad news across every day. We cling on to every bit of good news we can, hopeful that things will eventually turn around.

The point of this note is not to give you more bad news on the economy. It is to warn you and to have you warn those around you of the many scams that are proliferating via email. Recently, I’ve come across an incident where the scam artists even used regular mail to send out a very genuine-looking-fake-check with a letter encouraging the intended victims to actually take it to their bank and deposit it. The clear giveaway, of course, was the condition that the victims not tell anyone about it before the whole transaction was complete. I would likely have brushed it off if I had not come across another incident where a retiree I know lost money to a different variation of the same con game.

The recession does not mean that the con artists, the scammers and the opportunists are going to give up and walk away. To the contrary, they are taking full advantage of the situation and putting their best game forward to milk the unwary. What is worse is that they are employing hooks that will pull in those who genuinely need help the most.

Think of it – when times are good, and you have a job, you are less likely to fall for the “work-at-home” schemes or “you’ve won a foreign lottery” claims.

When you are out of a job, an email or a flyer telling you that you can earn a few hundred dollars a week sitting in-front of your computer, you’ll be more than a tad tempted to take a look and see what it is all about. It is exactly what the con artists are relying on – your willingness to take a chance.

When you are no longer able to or when you no longer have work, you’ll understand what it means to be afraid – of living with no health insurance, of not having food on the table, of not being able to pay the rent, and, worst of all, of having to tell your loved ones of the very things you had never imagined you would have to say to them. In your desperation, you might just try anything and you’re a clear target for the con artists to prey on.

When banks were paying a fair interest on deposits and corporations were distributing dividends to their shareholders, the elderly could live off the income from their investments and not worry about eating into the capital they have set aside. Until the banks and corporations return to health, every elderly person is revisiting their retirement plans, funds, and income and scrimping to avoid that horrible possibility of being destitute before their days on earth are done. They are the easiest of victims and a gold mine for the con artists.

Take a few minutes and talk to siblings, your friends, your parent and your grandparents about such tricks now – it is your duty! If you care at all about their well-being and about their financial security, now is the time to do it. You may not be able to do anything about improving what they have set aside for their silver or golden years but you can, at the very least, do something to protect their nest-egg.

Remember, they may not be as well informed as you are about the treacherous tricks that exist today. The older generation grew up in an age where the tools to reach the masses with the same con schemes were not as readily available. Today, a 1-800 number can be routed to anywhere in the world to a genuinely sounding ‘account officer’ in a country where laws do not exist to put such con men away.

If ever there is a time for everyone to be more vigilant, it is now.