Financial Rumblings-February 2, 2016

If the National Security Agency was monitoring for chatter on the word “recession” last month, they’d have a binder full of mentions, which would be right next to Mitt Romney’s binder full of mujeres. We’ll use the definition of a recession where there are two consecutive quarters of negative GDP growth-though this is not officially the definition used by the Bureau of Economic Analysis.

No, I don’t believe the U.S. will see a recession in 2016, but the U.S. economy will continue to shamble along like a “Walking Dead” zombie, not like a “World War Z” zombie. The unemployment rate is currently 5.0% -per the January 8th Labor Report, but it just feels like it’s much higher. In Southern California, there appears to be more people begging on the on/off ramps; more people sleeping in the doorways of buildings; more people needing assistance for food; and, in general, more hands out. I know Southern California is not the epicenter of the ills of the country, however, it is often said, “how California goes, so goes the nation.” Unemployment will increase  as companies begin to realize that their forecasted growth in income will not be achieved at the gross margin level, so they’ll have to begin to look elsewhere to make up the difference, and labor is always public enemy #1 or #2; it is usually one of the biggest expenses in the P&L. However, I don’t see this happening until the 3rd or 4th quarter of 2016; thus, the impact will be seen in 2017. And, since the U.S. economy is 2/3 based on consumer spending, it is easy to see the effect that a rising unemployment level has on the economy.

The Treasury Department’s hands will be tied because lowering the interest rate is now seen as purely symbolic- in part, because you’d expect the economy to be humming along by now given the easing of monetary policy for the past few years, thus companies will not invest in the company when the demand for their product is not there to justify increased expenses.

Those are my views. I’ve been somewhat spot on as Wall Street is slowly turning around to see the world through my Oakley polarized glasses-which are not very polarized given the 2016 U.S. economy is not very bright.

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financialmusingsblog

I write about the stock market and predict where the market will be in the future based on my experience as a financial analyst (corporate finance) and reading of the tea leaves.

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