Its common knowledge of course that the US no longer makes anything...not really anyway.We import all of that "stuff" now. Soon, we will have the Big 2 instead of the Big 3, and you can pretty much write-off anything that is manufacturing related...
So, what's been driving our economy for the last 10 years? Well, approx. 38% of our domestic GDP comes from the financial industry, and while I don't know exactly what percentage is pure profit/earnings related, it’s safe to say that this represents at least 50% of all corporate profits. So, Wall Street, banks, hedge funds, insurance and credit card co's, etc., have been the life-blood of our economy for at least a decade.
I think you can see where I am going with this. Because derivatives turned out to in fact be "weapons of mass financial destruction (just as Mr. Buffet predicted in 2004), we've now lost our engine of growth. We've lost Lehman, Merrill, AIG, Bear, Fannie, Freddie, Countrywide, WAMU, and 90% of all mortgage co's...all in less than 9 months...it’s still hard to believe this has actually happened. In fact, it's clear that most people are still in denial about what this is going to mean long term. TheWall Street Journal polls economists each quarter about the economy, and as a group they are looking for mildly negative growth this year and a positive GDP in 2009.....say what?? Folks, what's going to happen when these same economists realize that 2009 will bring a negative GDP of at least 3%, and possibly 5%? And that 2010 might not be any better?
This short term, bear market rally will fade soon, and next to feel the pain of this massive deleveraging process will be hedge funds, insurance co's, credit card issuers, commercial real estate and corporate debt. If you think I'm being too bearish, tell that to the 700,000 or so that have already been laid off...and this is before we have even officially entered the recession. Stay smart…stay prepared.
Kip