Friday, March 20, 2009

Bill Daniel’s insightful questions

These days, we all seem to be asking “where’s the bottom?” whether it’s about the stock market or the real estate business. Instead, after spending a few moments on the phone with my friend Bill, we should be asking, “what signs should we look for to see if we’ve finally reached that low point?” Often, it’s not so much the question than the way in which it’s framed. This one is no exception and this is why after visiting that “bottom” location several times already, I’ll try to re-frame based on some foreseeable signs…

We know what has yet to be resolved; it’s the falling real estate prices, the financial crisis and the stock market, all parameters linked to a degree and also independent from each other.

Real estate offers a variety of sectors. There’s the “necessary real estate,” namely the home we all live in. That one should be close to its bottom, because as a necessity it should be the most liquid. Then there is the speculative real estate, especially in resort towns where investors have “parked” their money into properties that they hoped would keep on appreciating year after year or could be “flipped” for a handsome profit; this bubble hasn’t deflated yet and when it does it could be ugly. Close, but not quite the same, is the commercial real estate sector that is about to blow up and could bring with it a different form of stress.

After announcing that it will “print” or rather issue in a few computer keystrokes over $1 trillion, the Fed is setting us up for some major inflation down the road and immediately with a much weaker dollar. We still haven’t finished x-raying the banks and found practical ways to rid them of their “toxic assets” and recapitalize the one that are hanging by a thread.

As for the stock market, consumer will have to step up to the plate and open up their wallet if we want to turn our GDP around. In truth, it may take a couple of quarters to see something happening. Before that, we’ll have to deal with Detroit and inject some money (half a trillion dollar?) into the domestic car industry to stabilize it.

This quick overview assumes that we can get out of Iraq on time and accelerate our departure from Afghanistan, but nothing is sure.

In summary, there are still too many threatening clouds hanging over the horizon to anticipate a turnaround in 2009. We probably will have to wait well into 2010…

No comments: