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Chasing the Economy

Official portrait of Federal Reserve Chairman ...

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Ben Bernanke’s brother, Seth Bernanke, runs a workers’ comp law practice in Charlotte, N.C.  His most recent blog entry notes that “approximately 30 percent of the American public has chronic pain … and the public needs to better understand how important this is …”
 
Brother Ben noted in his speech this morning that the “slow (economic) recovery has caused some to question whether the United States … (might) now be facing a prolonged period of stagnation.”
 
It appears the Bernanke brothers have an occupational hazard in common:  the temptation to chase ambulances.
 
I don’t know how often Seth finds himself making a knee-jerk decision to take on a plaintiff for the sake of billable hours. But if you are trying to assess Ben’s ability to withstand making a superficial decision when an entire country is worried about a double-dip recession, you don’t have to look much further than his non-committal, Melba toastesque comments he made today. Instead of caving to pressure, Ben said essentially nothing, and nothing is exactly what the market wanted to hear.
 
Clearly, Ben is trying not to pay too much attention to the flashing lights.  You go, Ben.  But like your brother, you will eventually have to make a decision about whether the latest spate of economic woes is worth the chase.

 

– Evan Pondel, epondel@pondel.com
 
 

Dow Sentiment

NYSE

NYSE (Photo credit: wikipedia.com)

This past week has been quite the roller coaster for investors and public companies alike. The Dow fell 513 points on Thursday, August 4, the biggest drop since 2008.
 
Following are some quotes from a few publications to sum up this week’s sentiment among the investment community:
 

  • “The very fact that we have been engrossed in dealing with our debt ceiling issues has taken our focus away from the task at hand–growing our economy and job creation,” said Bill Nuti, chairman and CEO of NCR Corp, a maker of automated-teller machines and other products.”If the U.S. credit rating is downgraded, he warned, “our economy will transition from a slow-growth scenario to a no-growth scenario, and we could likely find ourselves in a double-dip recession.”www.wsj.com
     

  • “You’ve got a weak economy, the aversion of a debt crisis but not a solution, and you’ve got the rest of the globe starting to implode in a lot of areas, especially Europe,” said Barry James, president and chief executive of the James Advantage Funds. “It’s natural that people would react with fear.” www.wsj.com
     

  • “The markets were very similar from a macroeconomic standpoint as they were on May 6 of last year, and obviously things performed much better,” said Joseph Cangemi, managing director of electronic trading for Convergex Inc. “We could have had a situation at any one time where capitulation could have happened, but the market structure itself did not allow it to breach any critical levels.”www.wsj.com
     

  • “Investors are anxious about the U.S. and global economic outlook, and the current market volatility reflects their distress,” said Larry Leibowitz, chief operating officer of NYSE Euronext. “While high volume has accompanied this volatility, we have not seen a real panic,” he added, asserting that exchanges’ performance has been “high” through a “difficult time.”www.wsj.com
     

  • “People are worried about liquidity and where the economy is going, and don’t see any sort of life preserver as yet,” said Doug Roberts, chief investment strategist at Channel Capital Research.www.marketwatch.com
     

  • “The ECB needs to continue to be aggressive in its efforts to solve the euro-zone debt crisis, but this will not happen overnight and as a result, will affect the U.S. economy in a negative way,” said Kevin Giddis, a fixed-income analyst at Morgan Keegan. www.marketwatch.com
     

  • “The most important thing for people to do right now is to take a deep breath, whether you’re reacting to the latest, pretty good job numbers or you’re still in shell shock from everything else we’ve learned in the last week,” said Jerry Webman, chief economist at Oppenheimer Funds in New York.www.yahoofinance.com
     

  • “The burden of debt has become much more onerous because the outlook for growth is sliding back. That is very concerning for the markets,” said Don Smith, economist at ICAP, the largest inter-dealer broker in the world. “The fear is ultimately about defaults and business failures.”www.yahoofinance.com

 

PondelWilkinson, investor@pondel.com
 
 

Bubble Effects

Reflective Bubble

Photo Credit: Flickr, zzub nik

Why does it seem the economy continues to putter along? Good economic news continues to get kicked in the shins the next day by bad economic news and the cycle continues day after day, week after week and month after month.
 
Every expert has a theory on why the recovery is proceeding at a slower pace than the effects of arthritis in both knees. Here’s one simple theory: No one has any money. At least no one in the middle class has money.
 
Marketwatch’s Rex Nutting wrote recently that it’s no great mystery. The housing bubble crushed the middle class. The cost of plummeting housing prices has been calculated at a staggering $7.38 trillion of lost wealth, sucking American homeowners’ equity into a financial black hole and reversing the trend of economic progress for the middle class.
 
Nutting’s theory is that when the bubble burst, the middle class could no longer take money from their homes to buy cars, boats, TVs and other gizmos. Now they are putting their money “into their homes, not taking it out,” and it will take a long time for the middle class to get back on track and in a financial comfort zone.

 

Ron Neal, rneal@pondel.com
 
 

Will Power

Remember that phrase, “It’s the economy, stupid“?  It’s a memorable slogan that emerged during Bill Clinton’s successful first run for presidency in 1992. Ever since then, but particularly in the last few meltdown years, everyone’s talking about it–the economy, that is.
 
The folks who attended the Tatum networking breakfast meeting this week, yours truly included, were no exception.
 
Two and three years ago, it was economic blame for performance woes; at this very same breakfast one year ago, the kvetching gave way to such clichéd rhetoric as hunkering down, blocking and tackling, more aggressive marketing and sales, and of course, slashing overhead.  Alas, while the economy was still the topic de jour at this week’s meeting, the accompanying language was different:  not quite ready to breathe a sigh of relief, but almost there; finally seeing signs of life; getting inquiries on some pretty good engagements;  this should actually be a better year.
 
Spewing those and similar positive utterances was an investment banker specializing in M&A, several auditors, a D&O insurance broker, a management consultant, and others who principally serve middle market companies. In all, there were about 20 folks at the meeting, all similarly positive, with the exception of one–a lawyer specializing in restructuring and bankruptcies, who, because of the unemployment situation, believes the current euphoric feeling is temporary at best and feels we are in for a double dip.  How the world has changed.
 
I, for one, would, of course, like to believe the majority.  After all, we, too, are starting to feel a little better. But the question remains, could that one lone dissenter be right?  Perhaps he is just trying to be hopeful, since in his specialty, bad economic times usually signal good business. And are the others truly feeling that their businesses are better, or are they in so much pain that they are being hopeful as well?
 
Our client, Steve Borick, CEO of Superior Industries, which manufactures wheels for most of the major auto makers, attended the auto show this week in Detroit. He said the mood was clearly up for this bellwether industry.  But he asked, who do you really believe?
 
As 2011 gets underway, it looks like things are getting better, especially if we believe the majority.  And perhaps if we will it, it will indeed come.  We just have to wait a little while longer and see what Q1 brings.

 

Roger Pondel, rpondel@pondel.com
 
 

Saying Tata to Economic Jitters

If there is any indication that the economy is softening and consumers are interested in curbing their spending habits, it’s the Tata. Yes, the Tata. Despite a name that is often associated with someone saying goodbye, the world is saying hello to arguably one of the most inexpensive cars on the road. Both Portfolio and The New Yorker ran stories about the Tata in recent weeks. So, how inexpensive is the Tata? Try $2,500. And you thought the Smart car was an economical solution to rising gas prices, market volatility and the lack of coolness in your life.

 

Evan Pondel, Senior Associate, epondel@pondel.com