Smith Faculty Opinion Article

John Haslem By Dr. John A. Haslem, Professor Emeritus of Finance
 E-MAIL WEB SITE

The 30 Seconds Outlook
September 1, 2010

“What we have here . . . is a failure of capitalists to act as capitalists.”
— Rob Parenteau, Naked Capitalism, June 28, 2010

In the August 15 Outlook, the argument was made that business cannot rationally invest in capital and labor if present economic conditions and outlook reflect too much UNCERTAINTY, including a politically driven economic agenda with unsustainable deficits.

There are numerous factors affecting business and the economy that suggest uncertainty in the current outlook:

  1. Undistributed profits are at record levels and waiting.
  2. Corporate holdings of cash are at record levels.
  3. Capital investment is negatively impacting job growth.
  4. Companies are holding down labor costs while maintaining productivity by laying off least productive employees.
  5. Low levels of Treasury yield curve suggest expected economic growth will continue to lag.
  6. Consumer Confidence Index is only about one-half its 1985 level.
  7. Major banks are hoarding cash rather than expanding credit.
  8. Price of gold is forecast to continue to rise—a traditional indicator of uncertainty.
  9. Gulf crisis may damage the economy and increase prices of fuel and food.
  10. Number of persons on food stamps is expected to increase to 43 million next year.
  11. Investors are making large bets on a “double dip” recession.
  12. Crisis in 46 state budgets is expected to worsen.
  13. Sales of new homes have fallen to record lows.
  14. Seventy-six percent of citizens believe the economy is still in recession.
  15. Globally, major banks remain highly leveraged (debt).
  16. Housing prices are expected to decline dramatically.
  17. Fed debates what to do in event of a “double dip” recession.
  18. Fed states unemployment rates will continue at high levels for “some time.”

This list could go further, but here are two questions:

  1. If you are CEO of a large or small producer of goods and services, what would be your current decision concerning investment in capital and labor?
  2. Do you have confidence in the current outlook for taxes, regulation and economic growth?

John A. Haslem