In's & Out's 07/07/09
From JP Morgan's latest In's & Out's...
Cost-cutting should remain a tailwind for corporate profits, but only up to a point.
The 467,000 jobs lost in June were more than during any month of the prior recession...
the 6.5 million jobs lost in the recession to date (4.7% of the starting level of employment) are the most of any downturn since the Great Depression.
Were this a normal recession, the steep yield curve would be inducing lenders to expand credit sufficiently to help the recovery take root.
But unfortunately, credit conditions are anything but normal today as banks struggle to rebuild their balance sheets...
and avoid taking on new risky loans in an economy that is still contracting.
With household net worth still shrinking, this may not change meaningfully until income starts growing again...
and lenders can be more confident that their loans will be repaid.
A material proportion of the near-term support from federal fiscal stimulus is likely to be offset by state and local government cuts.
The Nattering One Muses… corporate cost cutting means: less capex spending and more layoffs.
Banks rebuilding their balance sheets means: overstating asset values and hoarding cash, which means small business suffers.
State & local government cuts are the anathema of any durable economic recovery.
More spending on infrastructure is necessary to rebuild the durable economic base and repatriate the millions of jobs outsourced to labor at the margin.
Cost-cutting should remain a tailwind for corporate profits, but only up to a point.
The 467,000 jobs lost in June were more than during any month of the prior recession...
the 6.5 million jobs lost in the recession to date (4.7% of the starting level of employment) are the most of any downturn since the Great Depression.
Were this a normal recession, the steep yield curve would be inducing lenders to expand credit sufficiently to help the recovery take root.
But unfortunately, credit conditions are anything but normal today as banks struggle to rebuild their balance sheets...
and avoid taking on new risky loans in an economy that is still contracting.
With household net worth still shrinking, this may not change meaningfully until income starts growing again...
and lenders can be more confident that their loans will be repaid.
A material proportion of the near-term support from federal fiscal stimulus is likely to be offset by state and local government cuts.
The Nattering One Muses… corporate cost cutting means: less capex spending and more layoffs.
Banks rebuilding their balance sheets means: overstating asset values and hoarding cash, which means small business suffers.
State & local government cuts are the anathema of any durable economic recovery.
More spending on infrastructure is necessary to rebuild the durable economic base and repatriate the millions of jobs outsourced to labor at the margin.
Comments
And that means the recovery will never occur.