Chart from bloomberg.com
I last commented on the economy back in October and things are far worse now. The predictable job market loses are being reported daily, a pattern which I believe we’re likely to see for quite awhile. The next shoe to drop might well be the failure of some of our major financial institutions or the very large and distressed companies such as GM. It’s becoming increasingly unclear to me why throwing billions of dollars at these companies, like AIG in particular, is the right thing to do as they appear to be bottomless sink holes. Like BofA’s predicament with Merrill Lynch where it appears they completely misunderstood the severity of the problems Merrill faced. It’s striking how Ken Lewis, BofA’s CEO, was on 60 minutes in late October touted as having created one of America’s “healthiest banks” yet eight weeks later was asking for billions from tax payers in bail-out.
I find it hard to believe the government can continue writing checks without letting at least some of these large institutions fail. Now that we’re into near constant bail-outs it seems actually allowing even one to fail would likely send another shockwave to the economy yet it seems almost inevitable.
I’ve been traveling a lot lately for work and it’s interesting to see businesses that are doing well during these economic times. For example, I was recently in West Virginia training at the American Public University whose stock has held up quite well all things considered. And today, listening to Fareed Zakaria’s GPS podcast from March 1st with Canadian Prime Minister Stephen Harper about how Canada hasn’t had a single bank failure nor bail-out. In January I was in Toronto at the CPP Investment Board and asked about the impact of the economy on their business though they too are doing quite well. We also discussed how Canada’s banking regulations may have helped it avoid the crisis the US finds itself in as they haven’t suffered a sub-prime mortgage meltdown.
As for our personal investments I continue to be extremely concerned about our 401k/IRA’s as we’re over 50% loss meaning many years worth of savings is gone. We’re fortunate that we purchased our home in 1999 meaning we have valuable equity although that’s declining too. Home sales in our neighborhood used to be commonplace though houses now rarely come on the market and when they do they sit there for months.
Lastly is crime which at least anecdotally seems could be on the rise. In the past few months two friends of ours have had their cars broken into here in Scotts Valley, the first such cases I can recall in the 10 years we’ve lived here. I suspect this too will be a sad reality as time marches on and the number of displaced and desperate people increases. Speaking of which over the weekend we were at Costco in Santa Cruz and the crowd surrounding the nearby homeless shelter was many times the largest crowd I’d seen there before.
[Update: March 10, 2009] A third friend’s car was broken into this time in Aptos.
I haven’t reached the depths of despair of the like so aptly described in Robinson Crusoe, which I’m presently reading, but the economic outlook isn’t good.
Finally, as I learned from my son I’ll close with a few good notes: we just hired a new employee at Falafel this week and I head out on Sunday for yet another business trip, the third such trip this year. So here’s to good business!
[Update: March 19, 2009] A car in at neighboring house was broken into last night and my wife spoke with the police who said that our neighborhood had been targeted several times recently. Apparently, they caught two parolee’s from nearby town in relation to theft.