Morning reflections 8/27/10 and a look at the general state of things

This morning was quite intense as a mix of economic reports and a highly anticipated speech by Fed chairman Bernanke were occurring simultaneously.  Indeed as Bernanke announced that the recovery was going “too slow” and that unemployment was still “too high” the GDP numbers came back down to a revised 1.6% from the advanced number of 2.4%. Although this beats analysts expectations (are they ever right) it does not spell good news for the economy.  It is said that the GDP must grow at least at a rate of 2.5% just to keep up with unemployment as it is now.  This latest number indicates that things are going to get worst before they are going to get better.  Not surprisingly as Bernanke finished his speech consumer sentiment numbers were released as depressed.  It seems the people’s confidence that dropped significantly in July has yet to recover; the numbers were basically left unchanged from that month.  Yet, in a Kafkaesque twist corporate profits grew to an annualized 1.372 trillion projection after the second quarter.  That’s a 37.7 percent year to year rise which is down from the 50.8 percent rise of the last quarter but impressive nonetheless.

What does it mean?  It certainly doesn’t look like a double rainbow to me.  While companies are holding mountains of cash due to government stimulus and incentive they are obviously not trickling down this money to the American people.  An unclear environment for business is the official cause célèbre.  Businesses don’t know what tax implication the emerging legislations will have on their bottom line, and thus they do not hire. They blame the current administration for rocking the boat, while it is being blamed for not “creating jobs” at the same time.  It seems like a convenient excuse when thinking of the unbridled corporatism that occurred in the past 8 years that led to record profits and the mess we find ourselves in today.

Intel’s CEO Otellini publicly blamed Obama for creating “variables” in business that causes them to cut down on hiring and act quite defensively.  Quite ironic coming from a man that took over Intel in 2005, and oversaw the share prices drop while the economy was red hot.  During these “good business conditions” as he would put it he initiated an unprecedented exporting of jobs that were traditionally held in the United States.  While it didn’t seem he had any excuse for the stock price dropping during a rally, now seems like the time to shift the blame to the government.  Wouldn’t it be better for everyone if we could go back to those good old days in 2005 when no one cared about giving all our jobs to the Chinese?

It seems that one hand we are blaming the government for doing too much and intruding into our daily lives, and yet some will say that it isn’t doing enough “to create jobs”.  Corporate profits are still at a record high, and tax rates are at a record low.  The administration did what it had to do to save the corporations through stimulus, hoping that they would take the lead in creating the jobs.  Yet these took the cash, gave themselves nice fat bonuses and then horded the rest in giant piles and took a wait and see attitude.  Some companies, their wallets bursting at the seems are alleviating the problem by initiating gigantic mergers and acquisitions which invariably might cut down on the numbers of jobs even further.  Intel famously acquired the anti-virus software giant McAfee for $17 above the share price.  A move shareholders obviously didn’t approve of sending Intel shares down another 7% in the week since it occurred.

As a consolation Uncle Ben ended his speech with a hearty prediction that the “preconditions” for growth in 2011 are “in place.”  along with a promise that the fed will do “all it can” to support the economy should the outlook “deteriorate significantly.”  How comforting.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: