Recent optimism suggests we have bottomed out. The bear market is over and a raging bull is headed our way. I certainly hope so. The bear market has done far too much real damage to far too many people. I would be a great boost to the morale of America if it was over. A far bigger boost than another day with the new president working the teleprompter to tell us about yet another great step toward socialism.
I have a few reservations that this is the bottom.
First, as I have written in prior blogs, pension plans are grossly underfunded. Second, corporations can’t raise capital in the equity market. Secondary issuance is down from 60-80% and there has been one IPO this year. Corporations are cutting dividends to raise capital.
I have expressed concern about credit card defaults. It is estimated that 1/3 of current credit card delinquencies are sub prime. Bank loan losses may reach 3.5% this year, equal to the Great Depression.
The housing crisis is not over yet. Banks may be holding off some foreclosures since they are choking on what they have listed. Could be a lot more to come.
There is a huge overcapacity in manufacturing in the U.S. It’s not just the auto industry. More plant shuttering means more unemployment and less consumption.
Commercial mortgages loans are vulnerable. More and more retail shops, big and small are closing, leaving less cash flow for the developer. Those not closing are trying to renegotiate rents down. This has yet to shake out.
Last, the Fed needs huge amounts of funding to cover a growing deficit. As much as $2 trillion. How this gets done remains to be seen.
I would like to hope it’s over, but this list of concerns needs to be resolved or solutions come forth before I can buy the dream.
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