The World after Lehman Brothers

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Yes, most every commentator has expressed an opinion on the World after Lehman Brothers, but I have not seen a subjective, personal assessment. Here is one person’s non-empirical view. I see four major forces at work.

Corporations are bigger and stronger …

…their balance sheets are cleaner

…their cash hordes are larger (we call them hordes, that alone speaks volumes)

…growth agendas – if they exist – are extremely conservative

…cost containment and risk management have been the focus – that’s not a bad thing

…this yields historical highs on major indexes and banner years for asset managers.

Interest rates, while rising, remain historically low …

…combined with some recovery in housing this did create another refinancing boom

…refinancing is very rate sensitive, turning down with just small upward pressure

…it has kept life insurers in defensive mode, while helping big banks earnings rebound.

Personal economics remain daunting …

…real wages are stuck, at best

…while unemployment is down, this seems driven by “service jobs,” and chronic unemployment is troublingly persistent

…personal balance sheets have improved (individual debt levels are down), but that may be largely driven by mortgage restructures, foreclosures and bankruptcies

…Gen X and Gen Y have gotten a shot at home ownership as prices collapsed and rates stayed low

…people have realized, and hopefully will remember, how challenging saving for retirement can be, that safety nets are, at best, only that, that increased life spans can be great, but living for 25 or 30 years in retirement can be expensive.

People view government, especially Federal Government, with more disdain and suspicion than ever – confidence levels are now at Watergate era levels …

…seems nothing gets done, certainly nothing with a long-term perspective, a perfect example is the recurring debt ceiling debate (coming again soon) and lack of progress on entitlement programs and tax reform

…there is a complete lack of bipartisanship and cooperation

…polarization in Washington, driven by the far right and far left, has its roots in our redistricting processes, our representatives in Congress play to their audience because districts tend to be locks, one way or the other, in other words, until there is a meaningful debate to get elected, there will be no meaningful debate in DC.

These mixed messages drive continued lower than expected consumer confidence – after all, we are technically well past the recession. Any progress in Washington on these key issues would drive some uncertainty out of the system, which would unleash real corporate growth agendas, increase hiring and boost consumer confidence. That is the kind of recovery we all want.

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