Now the data is clear that the economy is slowing again and it is not just the weather. It is a combination of that and oil, the dollar, the port strike, and in my view, the real reason, which is a sense of foreboding permeating many decisions of companies. It is like a fog –you are driving and can see ahead, but not far ahead. You are headed to the beach and hope for sun, but as you drive it gets foggier. You keep driving in hope for a great day at the beach, but the more you drive the more uncertain you are that the sun will shine. That is where most people are today. Nobody can see where we are going. Jobs remain weak despite a good year in 2014. U6 is still at 10.9%, housing remains weal relatively, factory orders remain growing but slowly, and the dollar keeps rising. Wages are stagnant. A recent poll showed that 55% are fearful of another economic slowdown. I have a theory that so many people were shell shocked by the crash and now they are afraid to do anything but pay down debt and save. All you need to see is that the gas savings went to those two things and not spending. This generation is doing the same as my parents generation who lived through the last depression. Turning very conservative and fearful. Those people do not spend. Wages not going up are just proof to these people that times are not getting better. In fact on an inflation adjusted basis they are worse.
The combination of rules for 20% down, tough rules that punish banks for anything wrong on a mortgage, and the politically driven mass fines against the banks have crushed the mortgage market. The real losers on those giant fines are people who want a mortgage, staffs at the banks who got squeezed on bonuses and laid off, and small business that can't borrow. The fines looked great to Elizabeth Warren and Obama, but they were a disaster for the average family.
To all of this add the geopolitical mess the world is in. Turn on the TV news and it is war in Syria, Iraq, Libya, Yemen, Somalia, Afghanistan, and northwest Pakistan. All of it Muslim instigated and a mass genocide of Christians in all these places by the Muslims, and what do you expect people to think in the US. Now add that 6 people were arrested in the US in the past three weeks as terrorists, and warnings of more threats. Add a president who will not utter the word Muslim terror even after the massacre in Kenya, and nobody feels safe. Uncertainty reigns. Now we have a deal with Iran that is terrible and may be leading the world to another WWIII, and a poll saying that only 1% of Americans think Iran can be trusted, but Obama saying trust them and me, and people feel very uncertain and afraid of where from here.
Despite a prior string of encouraging data, there is this underlying fear and uncertainty which constrains the average family from spending as they might otherwise be expected to. Those who are data driven, and who ignore the underlying psychology, are missing the point of what is going on. I have this argument with a very prominent economist friend of mine who is well known but who is purely data driven and cannot understand why the March data are so bad. My point is data are useful, but you need to look underneath at where people's heads are, and where they think the world is headed, to assess economic growth properly. We still have less than 63% of people working. That means 38% are not and are being supported by the rest. They are not all old and retired, and even those people are struggling with rates so low or non-existent for savers.
The US has a fundamental problem of a gross lack of leadership. Obama is not Roosevelt, who rallied the people with his “all we have to fear is fear itself” speech. Now we have a president who has lied so often, and who has carried out a foreign policy that has led to multiple wars all at once, that only the ideologues still buy his BS. Congress has not shown the way either, so the people are left twisting in the wind. Leadership is what matters, and right now we have none at all. Most people want to be told what to do, and not to worry, and they want and need to believe in their leader. It is critical get people to spend. We do not have that today, and so the economy is lagging badly behind where it should be.
Bottom line, the economy has a long way to go to really grown consistently and well. Probably until 2017.
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Joel Ross
Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.
