Small Business and Consumers Static Economically at Best; Policy and Investment Implications

Two small business June surveys are out. The Discover(R)(Rasmussen) report on small business shows some worsening vs. May; click HERE for the latest report. Here's a brief excerpt:

Small business owners' economic confidence leveled off in June to halt a two-month rise. The index dipped to 86.1 this month from 87.4 in May as rising concerns over temporary cash flow issues offset some improvement in the way small business owners see the climate for their own operations. . .

The Watch recorded a slight increase in confidence about how individual business owners were faring: 30 percent say economic conditions for their businesses are improving, up from 28 percent in May; 43 percent said conditions are getting worse in June, down from 44 percent in May; and 34 percent said things are staying the same, up from 24 percent in May.

NFIB has pre-reported its June survey; click HERE for its press release. Here's the summary:

"Overall, the job creation picture is still bleak. Weak sales and uncertainty about the future continue to hold back any commitments to growth, hiring or capital spending. Job creation plans have been running far below comparable quarters in the recovery periods following two other major recessions."

Similarly, Gallup.com's tracking of consumer spending and hiring/not hiring have shown an aborted recovery, just as has Consumer Metrics.

How will the governmental/monetary powers respond? The well-connected British journalist "AE-P" comments in With the US trapped in depression, this really is starting to feel like 1932

From the ending of his article:

It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.

The Fed is already eyeing the printing press again. "It's appropriate to think about what we would do under a deflationary scenario," said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to "strict scrutiny", a comment I took as confirmation that the Fed Board is arguing internally about QE2. . .

Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us.

More and more, it is looking as though the authorities are readying new "stimulus". ZIRP 4EVA (zero interest-rate policy forever)?

The longer an honest accounting of the books of the banks, and the Fed, is delayed (or hidden from the public), the more confusing things get, and the more ordinary investors have no idea what's real and what's fake. If for example BofA is insolvent properly valuing its second-lien mortgages that it may be carrying at full value but that may be worthless, then shareholders can be wiped out and its bondholders can be forced, a la GM, to take a debt-for-equity switch. None of this would impinge on FDIC's guarantee. An honest resolution of these sorts of matters in a way that simplifies the entire financial structure, and shrinks finance to the fraction of the economy that it had in (say) 1955, would allow much more efficient allocation of resources than can be done now in our opaque world of financial secrecy and complexity.

More ZIRP, "stimulus" and the like, and the mislabeling of smaller but large governmental deficits as "austerity", argues in my opinion for gold as a means to attempt to preserve real purchasing power. If continued fiscal and monetary fuel is poured into the economy and the normal course of economic cyclicality occurs, at some point price inflation is likely, and in that case silver (and copper) may well have more upside than gold.

Stay tuned.

Copyright (C) Long Lake LLC 2010

From Hyannis Port: “Ted Kennedy never voted to help small business.’’

In Rebellious Air Sweeps Even Kennedy Turf, the Boston Globe reports today on how the election played out on the home turf of the Kennedys, Hyannis Port. It is quite a read, representing local reporting at its best. (If there were more of this sort of reporting, and local newspapers would not be in quite the same trouble as they are.) Here are some excerpts:

In this quiet seaside village where his family was rooted, Senator Edward M. Kennedy was a familiar figure, known by many residents as a friend and neighbor. But yesterday, Ted Kennedy’s hometown did not look or sound like a place deeply attached to the senator’s liberal legacy, with blue-and-red Scott Brown signs propped in shop windows and driveways, and many voters voicing an appetite for change. . .

Five months after the summer day when hundreds lined the streets to pay tribute to Kennedy, and a bagpiper played at foot of the Sagamore Bridge to mark his final journey off the Cape, the election day mood in Hyannis was anything but sentimental. Main Street business owners plastered Brown signs in their windows, passing pickup trucks boasting oversize Brown stickers, and many voters cited opposition to the federal health care plan - which Kennedy spent decades helping to build - as the key to their support for Brown. . .

In downtown Hyannis, where he had managed to find room for two Brown signs on his compact storefront, La Petite France Cafe owner Ian Parent railed against the notion that the Kennedy legacy should have any hold on the Senate seat.

“It’s the people’s seat, it’s not Ted Kennedy’s seat, and people have lost sight of that,’’ he said, standing by a rack stacked with loaves of fresh-baked bread. “Ted Kennedy never voted to help small business.’’

Most of the response to his signs had been positive, he said, but yesterday morning a customer called and told him she would never come into the cafe again. She hung up on him before he could respond, said Parent.
Two doors down from the cafe, another Brown sign hung in the window of Jack’s Drum Shop. Manager Stewart Johnston said Brown’s pledge to block the federal health care plan was most important to him.

Sandwiched between the two Brown supporters, scrimshaw artist and Black Whale Gallery owner Nancy Lyon said she was laying low, while quietly hoping for a Coakley win.

Just imagine. In the home turf of the Kennedys, a loyal Democratic voter "was laying low".

After too much power for too long and too many problems in Iraq, the Democratic tide in the 2006 elections was no surprise. After the financial meltdown in summer/fall 2008, the additional Democratic tide was also no surprise. But America can surprise. The foundering, floundering healthcare effort, which the president promised would be done by August, energized a state that had already provided for its uninsured. As the Boston Globe reports in another article today, Voter anger caught fire in final days, the Brown campaign benefitted from $12 M raised over the Internet and a growing amount of out-of-staters coming to Massachusetts to assist the effort.

Scott Brown appears to be no radical right member, but he did support waterboarding. As the title of this post suggests, his victory is a sign that one bulwark of our society, small business, feels that it has largely been left out of the Democratic agenda and wants in. That inclusiveness will likely be good for the economy and good for the country.

The technical breakout of the stock market that was commented on here around yearend from the giant dome that was being traced from the March rally now has another psychological support. Investors should not get carried away, however. The balance of Federal power has not changed much, but for now, the sense is that even in Hyannis Port, many people want balanced change.

Copyright (C) Long Lake LLC 2010