We believe we are in a disruptive time in our economy. You can argue that families have been budgeting for higher taxes, and businesses have been cutting back on spending in preparation for the fiscal cliff. Perhaps it is true. People are keeping their powder dry. We think the president is on a power roll, and unfortunately, there is nothing going on in Washington D.C. to make taxpayers or investors feel good about our current situation.
“Recession” however, may be too strong of a word. We believe that this quarter, people and businesses will stay conservative; thus, we expect first quarter GDP to be low or close to zero. We believe it is also likely that second quarter may see a negative GDP. We are not predicting a 4% drop off the cliff. If it weren’t for the current politics over the fiscal cliff weighing on us, we feel we have a very good economy today.
Some reports have shown a reduction in the shadow inventory of homes and that most of the foreclosures have been worked off. If most banks are in the clear, the housing surge we are seeing may have staying power.
ISI reported there were more than 386 stimulus announcements in the past 16 months worldwide; therefore, almost the entire world had a vested interest in making sure growth picks up soon. We do not believe earnings will be down, as it is possible for companies to report earnings and for profits to rise in a recession. Again, we are not predicting a drop of 4%. We merely do not see growth for a quarter or two. The tax laws were not as bad as expected. Regardless of whether Congress raises the debt ceiling or they let sequestration begin, the cuts represent only 0.5% of GDP.
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