Tip:
Extremely accurate commentary.
Corporate capital spending is finished, no matter what Greenspan does. Corporations can't spend if they are not making profits and profits are in freefall.
Worse yet, corporations are and will remain in "cost-cutting mode", and as I noted earlier, I don't see anything that will turn this for the foreseeable. This means that the lay-offs continue, or even accelerate. If I am right on this, then consumer spending is also in for continued serious deterioration, as nothing impacts consumer spending as much as do lay-offs. Yes, so long as re-financing continues, the money extracted that exceeds the former mortgage (i.e., reduced equity left in the re-financed home) can find its way into consumer spending, but once that starts to wane, then I think we are in for wintry economic winds.
Much of what I saw this past fall and pre-Christmas suggested to me that the consumer is already starting to pull in his horns. Given the fact that most of the world's corporations are now dependent solely on the U.S. consumer for sales, I simply don't see how we avoid the waterfall.
Another fact that tends not to be considered by investors is that while short term rates have been driven down, longer term money is still rather expensive. This suggests to me that the bond vigilantes are alive and well and not prepared to knuckle under. It also has negative implications for the debt encumbered and, as you note, for the buck. I agree with you that Greenspan is just about finished with respect to rate reductions.
As you note, there has been much stealing of sales from 2002 via zero percent financing and this really worries me. As the economy cools further, sales revenues could crater very quickly, with obvious implications for an already ugly profits picture. A dramatic negative acceleration in sales revenues is our worst nightmare.... yet it sure looks like this is what is happening to this observer. Early days to be sure, but happening nevertheless. Once we get through the post Christmas sales, I think reduced sales revenues will start to be noted more or less right across the board. If this happens, even Gerstner-type accounting is not going to paper over the problems
Best, Earlie |
