The economy.

My son asked me yesterday, “Was the economy getting better?” I replied, “No.” He then asked appropriately, “Isn’t the stock market moving up?” I replied, “Yes, but do not be seduced by what you see for the wrong reasons.”

The market is moving up because every day pension funds have millions of dollars to invest. Real estate has burned many people and the banks are paying obscenely low interest rates. The result is that the money flows into the stock market not based on fundamentals of the economy, but based on the best of unacceptable other alternatives. Oil rich nations have the same problems.

For example, each day 50 large tankers show up on our shores and deliver us 10 million barrels of oil. We fill the tankers with a billion dollars of US currency and ship it back to the nations that produced the oil. Where can they put $400 billion a year? Not in real estate. Not in banks. But into the stock market.

The unemployment rate of 10% or more is not changing. And IMO, it will never ever be in the 4-6% again. The structure of jobs and the efficiency of technology has created a lower demand for jobs. It just does not take the same amount of working people that it used to create GNP. Productivity is up.

When viewing unemployment or job creation, keep in mind the government can not create a job with its spending of your money more efficiently than you can. And that ultimately jobs are created by a growing industry, which the USA has none. The steel industry grew and created jobs. The electronic industry did the same. The automobile industry did the same. Where is the growth industry today? Growth companies, yes. Growth industries, no. There will always be another Google somewhere, but the big impact industries, steel, automotive, and electronics have gone global and left the USA in the dust.

Today, there are no growing industries, and technology, bless its microchip little heart, because of efficiencies in productivity reduces-- yes I know it sounds like double talk, but technology efficiencies reduce the need for jobs as well as dramatically restructures the job skills that are required. I do not need as many people to add rows and columns of numbers when I have Excel. Do I need to list more examples? I do not think so.

The real estate market will not recover. Maybe never. Why? We have enough homes and in many places they are still too expensive. For example, a 3,000 sq.ft. home in San Francisco is still priced in a bad market at more than a $1 million, while in Kansas it is still priced at $300,000. Commercial real estate fares no better as businesses simply need less room to produce products, particularly in a knowledge economy, compared to a few decades ago.

I will give you one example but there are many more. Check this out if you want. IBM has twice the sales it had 10 years ago with one-half the number of employees. Result is no recovery in the commercial market. Simply put. We do not need as many offices.

Let’s review. No growing industry, dramatic increases in productivity, low housing demands and high unemployment-means the stock market will have some temporary spikes and a few companies, if Washington leaves them alone, will still grow, but the overall economy is flat as far as I can see.

However, there is always a however. There are two magnificent opportunities that could change all of this gloom and doom and put us back on a strong economic growth path. Watch for my next blog and I will tell you what they are. I know you will agree with me. But we will need a new president to do it.