Professor Elam

A
Look Ahead-2010

“No longer
are we going to run New York like a payday loan operation,”

David Paterson Governor of New York, State of
the State

 

That comment is perhaps the most prescient for
the year. So with that as prelude, what is likely to happen in 2010?

 

A chart in USA Today lists Texas as the state
most likely to generate jobs. Basket cases like Detroit, MI will continue to
beg for Federal help. The New Civil War between the right to work South and the
failing rust belt continues.

 

The stock market will likely hold up well into
the spring. Expect a sideways correction starting this month with a final burst
up in May and June.

 

The Federal stimulus has not created a single
private sector job.  Instead higher
taxes and more regulation such as health care continue to be disincentives to
hire. Government employment has not shrunk a bit, the Teamsters now have more
government than private employed members. We do not expect unemployment to drop
below 10%; the real U-6 unemployment 
now stands at 17.2%.

 

The 
price of oil has risen to $80+ . We expect the price to top $100 by
spring, and to move higher from there. Unlike other columnists, we would rather
make realistic predictions that can be updated than pie in the sky
platitudes.  If that occurs, expect
new highs other commodity markets as well like gold, silver, and copper.

 

Overall there is not a pool of buyers to absorb
all the 30 year old homes on the market as boomers seek to downsize. The Case
Shiller model suggests prices need to fall another 30-40%.  There are hundreds of 30 year old
houses here in San Antonio listed for a quarter of a million dollars and no one
to buy them. The newspaper has started a column entitled Overlooked Gems for
homes that have not sold. 
Additional social services in Andrews along with a more diversified
economy has led to a stable population and surprisingly high home prices. (Home
prices crashed in 1986 but not in 2008 when oil crashed both times).

 

Hold your personal political opinions and let’s
examine what has happened. Barack Obama got positive approval ratings simply
because he was not George Bush. A year after being in office, he now bears the
brunt of the same negative mood he inherited from Bush. Like Jimmy Carter, he
has sagged below 50% in approval. As unemployment drags on and he continues to
ignore pleas for less government, his ratings will continue to fall.  This simply parallels the 1970s
templates of Nixon, Ford, and Carter.

 

The panty bomber may well have been a trial
run. Now terrorists  know that
first hand information (my son is a crackpot) is ignored and no, the FBI TSA
cannot connect the dots. The panty bomber was quite successful, air line travel
now gets worse with no increase in effectiveness.   New York and Chicago had best hope terrorists do not
target subways. It would not be possible to search subway riders and still have
an effective, timely subway system. With Fort Hood, CIA dead in Afghan, and the
panty bomber in three months, we should expect more domestic terror
attempts. 

 

Deflation continues. One pizza chain now offers
any size, any topping, $10.  The
Dollar menu reigns supreme at burger joints. Car sales have struggled back to
12 million annual units on Cash for Clunkers. But that is about replacement,
for the first time in decades more cars are being removed from the road than
replaced.

 

But as we have stated numerous times here, all
predictions depend on the US Dollar. 
This morning, Thursday Jan 7, 2009, the dollar is up. Our model for the
West Texas economy, Patterson PTEN, has hit resistance in the $17 area. Nabors
NBR is doing much better.  Our
bottom line is this, the future of commodity based economies like West Texas
are dependent on the strength of the Dollar. A stronger dollar will depress oil
prices near term.  Having said
that, the continued diversification out of Dollars and into commodities by
China has led oil up from its $35 low.

 

The best performing investments the last ten
years were gold and oil. Gold began at $300 and oil around $12. While oil
crashed in 2008, the year over year increase still made it a top performer for
2000-2009. Stocks have are right where they were in 1999 but with lower
dividends.  Like Japan, the USA has
experienced a Lost Decade.