Tuesday, August 17, 2010

Same vs. Different: Mort Zuckerman In The WSJ

Mort Zuckerman's editorial in yesterday's Wall Street Journal concerning the loss of optimism in America reinforced what, to me, is the overriding basis of differing views on the current state and near-term prospects for the US economy. That is, do you believe it's the same as it ever was, or, like David Rosenberg, do you believe things are very different this time?

Zuckerman made it clear that this unusually weak economic recovery is different.

This morning, on CNBC, one of the morning program's contributors from Chicago, Kevin Ferry, contended that so many corporations are tapping capital markets for low-priced debt that this simply must result in robust economic growth down the road a bit.

Really? How about the idea that these CFOs are simply lowering their long term total financing costs while they can. Period. Or that growth will occur in more robust markets, i.e., overseas? Including the concomitant job growth?

My business partner and I have been discussing for months the inevitable weakness of this economic so-called recovery. Thus, we've been amazed at the brief periods of equity market bullishness.

But the recent week's tumble of the S&P from 1127 down to 1079, and longer term drop from 1206 to the latter figure, have produced a high volatility which makes banking on a full-fledged recovery questionable.

Zuckerman's repetition of some frightful labor statistics reinforces my own belief that this time, it is different,

"1.4 million of them have been jobless for more than 99 weeks, 6.5 million have been jobless for over 27 weeks. This is a stunning reflection of the longer-term unemployment we are coping with."

Her also cites a similar statistic to one offered by Rosenberg which I mentioned in the prior, linked post,

"The relationship of household debt to income has proven unsustainable. The ratio is normally established somewhere below 100%, but in 2007, the debt ratio hit 131% of income. It has now fallen to 122%, but at this pace it would take another five years to bring it under 100%. The pre-bubble norm was 70%. To get to this ratio again, debt would have to be reduced by about $6 trillion."

Just so. Private sector deleveraging.

Rosenberg noticed it. So does Zuckerman. It's been a constant theme since late 2008. Despite Fed policies and ill-conceived stimulus spending which adds to the US deficit, deleveraging would seem to be a strong, undeniable force as it reverts to the mean.

Hardly a prescription for near-term healthy US economic growth, including jobs, is it?

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