Several major changes in the economy began to unfold in the last two weeks. I was discussing the Euro and Eurozone economic changes with a couple of friends, and I realized for a moment that a vast majority of business owners most likely had little to no idea what was going on, or how it might impact their business in the next 2 years.
The stock markets have dropped 10% and in some sectors there was almost panic selling. Would China slow exports, the Eurozone slow imports, and the United States suffer a double dip recession as a result?
Important things to ponder if you run a business.
Here is how I see it playing out.
Short term.. markets might do anything, financial fear was dramatic in its impact on the markets, then the psychology of purchasers, sales and employment fell.
Medium term I see benefits to housing, land and lots, construction materials, retailers who have adjusted to sell to those who have jobs, and manufacturing for domestic consumption.
Why? Funds will continue to flow into US bonds due to uncertainty in the Eurozone, and the falling Euro, which I believe will continue to fall even after today’s large “rescue”, and that drives down interest rates.
Lower long term rates will continue the trend started by the Federal housing purchase subsidy by extending the period of time before rates rise. The Fed was close to raising rates, and now it will delay that with Europe in peril, and for once the United States local economies will benefit from world economic turmoil. The Euro support should keep a the downside risk somewhat stable limiting a further sharp decline, yet we believe the weakness will continue, in a more manageable way.
Retailers that have adjusted to doing OK by selling to those that are willing to buy, will continue to prosper. Those that are still not profitable may not do any better. Those companies that have figured out a way to make money without selling to the unemployed will continue to prosper.
Exports to Europe will drop, but they are “only” about 25% of our exports. China is slowing their availability of credit, so the funds that were flowing into their stock market will slow. Major industries will be fine as they get their funds from inside sources. Exports from China should not be substantially impacted as the US should continue to grow its imports from China, although at a slow pace.
Oil could go either way. Eurozone economic weakness may keep prices lower, and certainly they will not rise as fast as we thought only two weeks ago. This is good for consumers, housing, manufacturing, and retailers.
Today; John Paulson, who made lots of money shorting housing before the fall, flipped positive on housing saying that his staff has been observing California, and that the region there usually precedes the rest of the country by 6 months. He see’s housing up 3 to 5% in 2010 and 7 to 10% in 2011. There are some big opportunities available for those businesses who have a good consultant with their eye on the economic factors such as these. Other data sees Florida and California prices rising.
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