Sniffing economic winds in the US

I came to NYC to get a feel for the impact of economic downfall on the big apple. However I couldn’t avoid reading the latest on the whole nation: cities and counties are reporting a sharp increase in homeless families! In NYC shelter beds have kept the number of people living on the street or in their cars low. The report on consumer loans (home, car, credit card) is also alarming – 4% of them are in default, which means that consumers are paying late or not at all.The unemployment rate is at 8,5% according to Labor Department. More than 2 million jobs have been cut in 2009 totaling 5,1 million since the recession began. And CEO’s are still getting extraordinary perks in form of bonuses, stock options etc. compensation. This is pretty much interesting then in Japan CEOs are cutting their own salaries, too,  when cutting for the people they lead. I bring this up, because I have cut my own salary by 25% this year as well. In my opinion this is well in line with shareholders’ interest as well. Certainly companies have to fire and lay off employees and workers as needed, but why that would not impact CEO pay? If the company does well and is making profits and keeps on growing, the perks are ok, but if the net result is not positive and growing (after all CEO compensation) there is no reason whatsoever to give extraordinary perks to CEOs. One way to increase profits is to do more on-line and in home offices.

In the big apple stores are laying off and closing – only few are opening. There are spaces for rent in good locations. Most of the shoppers look and sound like foreign tourists. Property values have dropped. The city is still better than it has been some years ago, but it might turn worse soon. Restaurants are having customers in Little Italy and cafes are more or less full at the Time Square. People in Central Park look happy and are excercising. The subways and public transportation are busy with people.

Despite of these facts I don’t see any soon ending for recession neither in NYC or in the US overall. My personal understanding is that the turn might begin late in 2009 or spring 2010. The bottom line result will be a huge number of people staying without income for a long period of times. Values for homes will not gain back their previous levels for years. People who have lost their investments in 401k, 529, or stocks etc. have to work longer, look for something else and when having something left to trust in stocks again in order to gain some of their losses back. The ride will be bumpy however. There are still two major questions left: the level of interest rates and the exchange rate. When interest rates remain low some activity in investment field will begin sooner or later, but printing of dollars will bring the value of greenback down and that is in the interest of the USA – less imports and more exports. Also paying foreign debt (taken in USD) with dollars having a lower value is easier after all. Also an inflation is healthy, if it is not out of control. That latter might happen only when Japan, China and Arabs start to sell their dollars at once. The best medicine now is to remain calm, consider investing carefully, and act with determination.

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