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Why Business Leaders Remain Gloomy
Tweet Share on Facebook April 30, 2010 Comment (9)If you're inclined toward optimism, there are certainly a few economic trends that will soothe your frontal lobe. The economy is growing again after a grueling recession that probably lasted close to two years. Massive government intervention has helped reeling banks get back on their feet. And a year-long stock market rally has helped investors rebuild battered portfolios.
[See what's going right and wrong with the economy.]
But business leaders aren't convinced that an enduring recovery is underway—and they're the ones who decide whether to start hiring again, which is the most important step back toward a healthy economy. At a recent conference sponsored by the nonprofit Milken Institute in Los Angeles, dozens of executives, financiers, economists, and entrepreneurs expressed deep skepticism about a recovery built largely on government spending and companies doing more with less. "The economy is bifurcated into a strong and recovered corporate sector, and a weak and beleaguered consumer sector," says banking analyst Meredith Whitney. While a few things are going right, the people paid to anticipate future risks still see a lot of them. Here are 10 top worries, in the words of business leaders themselves:
Job growth is anemic. Employers are finally adding more jobs than they eliminate, on average, but the pace of job growth is far below what it will take to absorb 15 million unemployed Americans. And there's a good chance it could take longer for jobs to return than after any other recession since the 1930s. "If you don't have job creation you're not going to have this economy really growing," says Marc Lasry, CEO of investing firm Avenue Capital Group. "This economy is so dependent on consumers that you need job growth."
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7 New Rules For Getting Ahead
Tweet Share on Facebook April 30, 2010 Comment (69)Karen DeSha needs a job, but she'd like some answers too. For more than a decade DeSha made a good living selling real estate, then she took a few years off, until her son finished high school. She went back to work in 2007, just as the housing bust was about to decimate her industry. Since then, DeSha, 54, of Bel Air, Md., has sought sales jobs in and out of real estate, with no luck. Her savings are gone, her credit cards are maxed out, and she's on the verge of declaring bankruptcy. But even more frustrating than financial ruin is the sense that she's powerless to improve her own fortunes. "I consider myself to be optimistic and independent, with loads of tenacity," she says. "I know I've got to get myself out of this, I just haven't figured out how yet."
[See how to stay upbeat amid financial ruin.]
With the worst recession in decades finally easing, the question many Americans are asking is, what now? After prior recessions, many of the lost jobs came back quickly and people more or less resumed their former lives. But this time, economists think many of the 8.4 million jobs lost during the recession are gone for good, with a tumultuous period of adjustment ahead. "There's a global paradigm shift going on," said Mohammed El-Arian, CEO of the huge investment firm PIMCO, at a recent conference in Los Angeles. "There's always a recognition lag. People hold onto the old paradigm until the evidence of a new paradigm is overwhelming."
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Why Consumers Aren't So Frugal After All
Tweet Share on Facebook April 29, 2010 Comment (1)American consumers have an identity crisis. For years they bought more than they could afford, using easy credit to fill the gap. Spending plunged during the recession, of course, as the nation's shoppers started to pay down record levels of debt. But after a couple years of retail abstinence, consumers seem itching to buy again--even though economists say they need to save more and spend less. At this year's Milken institute Global Conference I spoke about consumer habits with Martin Franklin, CEO of Jarden Corp., which makes a range of consumer goods including sports equipment, kitchen appliances and playing cards. Here's a video of our chat:
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How To Plan For a Slow-Motion Recovery
Tweet Share on Facebook April 29, 2010 Comment (4)We all want a robust recovery to kick in, so we can go back to buying stuff and enjoying ourselves without worrying about where the money's going to come from. But that seems unlikely to happen. Most forecasts call for several years of uncomfortably high unemployment, with wages rising slowly and consumers struggling to pay down the debt they've wracked up over the last several years. I spoke with economist Gary Shilling at the recent Milken Institute Global Conference about why a recovery is taking so long, and what ordinary people should do about it. Here's the video:
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New Ways To Make Your Fortune On the Web
Tweet Share on Facebook April 29, 2010 Comment (8)You might think that all the good ideas for a Web site have been taken, or that it's a terrible time to start a business. Mike Zapolin disagress. "Zappy," as he's known, has started Web sites that millions of consumers have visited, such as music.com, creditcards.com, silver.com and homemortgage.com, and he just published Internet Warrior, a guide to getting rich online (like him). I spoke with Zapolin at this year's Milken Institute Global Conference in Los Angeles about how ordinary people can still find opportunity on the Web. Here's the video:
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One Cheer For the Detroit Automakers
Tweet Share on Facebook April 24, 2010 Comment (4)Ford is profitable again, and General Motors and Chrysler look like they're turning a corner. But proclamations of a comeback are premature. I recently discussed prospects for the Detroit 3 with CNN's John Roberts on American Morning. Here's the clip:
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A User's Guide to Financial Reform
Tweet Share on Facebook April 23, 2010 Comment (6)Attentive citizens can be excused for feeling like they've overdosed on reform from Washington. The healthcare overhaul was bitter and exhausting, energy and education reform are kicking around, and we haven't even started the mother of all Washington battles: entitlement reform.
[See what's going right and wrong with the economy.]
But fixing the financial system is awfully important, kind of like fixing your car after the front end has been mangled in a crash. Like healthcare reform, the dickering over new financial rules involves competing proposals from various Congressional committees, intense lobbying, and hyperbolic pronouncements from the affected industries. But unlike healthcare, there's widespread agreement that the system is broken and that the main practitioners—Wall Street financial firms—need to be reined in. That means final legislation might come by summer, with less partisan bickering than usual and maybe even a few Republican votes. Who knows, the government might even come up with something that benefits its citizens.
Finance can be extremely arcane—one reason Wall Street wizards have been able to bamboozle regulators along with ordinary consumers. But the basic principles of reform aren't that complicated. Here's a crib sheet outlining the main issues, plus some handicapping on which types of reforms are most important, and the likely outcomes:
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Why the Economy Still Earns a C -
Tweet Share on Facebook April 22, 2010 CommentABC News recently invited me on its Good Money program to discuss my story on what's going right and wrong with the economy. Here's a clip:
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The Upside of Financial Reform
Tweet Share on Facebook April 22, 2010 CommentI appeared on CBS News recently to discuss the outlook for financial reform. Here's a clip:
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How Goldman Sachs Abandoned the 'Real' Economy
Tweet Share on Facebook April 21, 2010 Comment (17)The government might not win its lawsuit against Goldman Sachs. But even if it doesn't, the scrutiny is shining some much-needed light into one of Wall Street's most opaque "black boxes." And what we've seen so far supports the view that Wall Street has become a vast gambling operation that doesn't deserve the bailouts it's gotten.
Goldman is notoriously circumspect about its operations, assuaging investors with fat profits but keeping many of its operational details secret. The SEC complaint against Goldman suggests why. Finance is an arcane business to start with, made more so by "derivatives" that are linked to real assets but don't have any inherent value of their own. Some derivatives, such as certain hedges or futures contracts, help real companies reduce the risk of unforeseen price changes or other sudden events that could wreak havoc with their business. But increasingly, the financial community has been hiding behind the legitimate use of derivatives to simply make speculative bets that do nothing for the real economy—except jeopardize it.
Rick Newman
The global economy is mysterious, even scary. Chief Business Correspondent Rick Newman connects the dots. In addition to his writing for U.S. News, Rick is the co-author of two books: Firefight: Inside the Battle to Save the Pentagon on 9/11, and Bury Us Upside Down: The Misty Pilots and the Secret Battle for the Ho Chi Minh Trail.
Read Rick's latest blog entries here.
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