September 10, 2009:
It is hard to believe that a year has gone by since the collapse of Lehman Brothers investment firm. Years from now, historians will still be evaluating the 2008 year and the decisions made by our leadership in government and business. The question becomes, “are we through with the worst part of this downturn of the Great Recession?”
In my view, the next 11 to 12 weeks will validate whether our economy will recover or not. Our expectation is that the next 12 months will require corporate America, municipalities, and consumers to restructure their balance sheets. Assets will have to match liabilities and net incomes will have to be positive. These next few weeks will bring this thought process to light as more questions are asked. Will we see growth in production, new orders, temporary workers, and housing starts? These categories usually turn positive as soon as a recovery begins.
Of course, one has to remain concerned that bank balance sheets are still carrying questionable loan valuations on their books. Will this force banks to take additional asset write-downs? Concern also continues about the FDIC (Federal Deposit Insurance Corp) when it announced that it insures some $4.5 trillion dollars in U.S. bank deposits while it’s fund has fallen to $10.4 billion dollars by the end of June. Keep in mind the fund was $45.2 billion dollars a year ago. Are we as Americans looking at the next bailout, as banks continue to fail across the country? Please make note that I haven’t even addressed concerns about the commercial real estate market and the impact it could have on banks.
And last, we cannot forget the consumer. Consumer spending is pegged by retail sales. I haven’t seen a revival yet, as confirmed by the disappointing back to school sales. Pimco’s Mohamed El-Erian has said it best by calling this time period “the new normal”, in which he states the next few years will look quite a bit different than what investors are accustom. I think the next 12 to 16 weeks will give us insight on how to define the “new normal.” The collapse of Lehman Brothers was just the beginning.
I would like to hear your thoughts and comments,