Thoughts Ahead Of A Crazy Week

After the initial estimate of Q3 GDP on Friday, we have the mid-term elections tomorrow, the Fed meeting announcements on Weds, and the Unemployment figures on Friday.  It will be a crazy week, so I thought I’d take a minute or two and reflect on where we are.

As I posted last week, the growth rate of GDP is slowing.  Even though Q3 was estimated at 2.0%, which is above the final number for Q2 of 1.7%, I expect the Q3 number to be revised down.  Several trillion dollars later, our growth is anemic at best, and fed by the falling value of the dollar.

The elections are interesting, but at this point it is all over but the crying.  It can’t happen soon enough.  Living in FL, we are bombarded with the most idiotic, misleading, and downright lies in advertising I’ve ever seen.  It makes me hate all candidates, no matter what side of the aisle they are from.  On the national front, it is interesting because if Congress ends up split, or even just close to 50/50, then the chances of major legislation fall close to zero.  While some think that is cause for celebration since no new big initiatives would get through, it also means that very little will be done to adjust the coming tax increases (it’s hard to refer to a tax cut from a decade ago as something that will be “gotten rid of.” At this point, it’s an automatic tax hike), the harsh provisions of the healthcare act, or anything else.  Just imagine when estate taxes go back to 45% for anything over $1mm. 

I think the Fed meeting will disappoint.  Ben Bernanke doesn’t want to give anyone a free lunch (think the market front-running all the quantitative easing so far).  He wants very mild inflation to return and form a solid base so that consumers and businesses are motivated to spend, thereby alleviating some unemployment.  It won’t work.  We spent too much by borrowing.  We are spending less.  We are borrowing less.  The economy must slow to account for that.  Bernanke will keep his options open, frustrate the market by not making a clear pronouncement, and then give the market exactly what it wants over time by continuing to print new dollars as his efforts remain ineffective.   

Part of the realization of ineffectiveness will come with unemployment.  We simply are not creating jobs, as we don’t need them right now. I expect this number to disappoint (less than 65k new jobs).  The only caveat is that I read a report that for the first time election workers are being required to sign on as employees in this mid-term election, even though they only work for a couple of weeks (training and then the elections).  If this is true, then we could see unemployment skewed in the reporting.

99 weeks of unemployment, almost 2 years, are starting to run out.  For those in states that qualify for the 99 weeks, we are now at the end of benefits for those unemployed since late 2008.  These workers are not going to be happy, as no jobs have magically appeared, and their spending is going to veer near zero.

Today, personal income and spending were reported, both lower than anticipated.  It’s a trend.

Finally, we are in the midst of the greatest economic upheaval in most of our lifetimes.  This is a long, drawn out process, not an event.  Foreclosures must be done, capacity contracted, debts repaid/charged off.  There are no quick solutions. 

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