Thursday, December 09, 2010

The Calm After The Storm

Over the past 18 months, I have been completely engaged in the construction and now running of Zeus Digital Theaters. My previous posts about the project have given a little insight into what I went through in order to get the project done. However, now that is over with, it is time for me to start paying attention to the rest of the world around me and where I think things are going on a medium-macro level in the mid term.

First, I think this part of Virginia has seen the worst of the recession. Nationwide, unemployment is rising still (latest is 9.8%, but that will be adjusted as it always is.) Much of the increases are from the economy not creating enough jobs to both feed the supply of new entrants and re-employ previously unemployed workers.

I believe a part of the sluggishness in employment growth is tied to Corporate America's resistance to new investments in new bricks and mortar locations is a tie over from the down turn where companies increased their operating profits by cutting costs (employees). All the blood is gone from that turnip. Now, the only way to increase profits is to either make some miraculous increase in productivity or to invest in new market growth in order to increase revenue.

So I do predict that corporate investment activity will increase in the next year. Of course, some of that cash sitting on their balances sheets will and should go to either stock buy-backs or to dividends. However, neither will increase revenues which is needed to increase profits. As a result, investment into market growth will happen this year. It has to. None of the executives want to be the guy sitting on the sideline with a pile of cash while their competitors gobble up market share. Once one moves, the others will follow.

Once the investment starts, we should see a jump in construction spending and related jobs. Once we start to see job growth again, then the Fed will start to un-wind all the liquidity programs, long term bond purchases and ultimately the Fed Funds Rate will rise. Once that happens, order will be restored to the universe. Of course, once interest rates rise, growth should slow a bit, but the dollar will strengthen as money flows into the US economy for debt investment.

Simple right? Publish Post

So the key right now to getting job growth is in the hands of the big corporations. They need to invest some of that cash to grow their revenues. That will in turn spur hiring, etc. etc.

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