FedEx (FDX, news, msgs) last Wednesday tempered the enthusiasm of folks on "green shoot" watch. While stating its belief that the economy had hit bottom, the company also said it had no "visibility" to predict future earnings or any expectations of a real uptick in business.
Much of this economic green shoot talk has centered on slight improvements in still-weak/sloppy business conditions. But a lot of that has been a function of companies restocking inventory after the collapse in business at the end of last year and the start of this one.
That, coupled with money printing and the stock market rally, fed on itself and caused a lot of people to get excited about economic prospects improving drastically by the year-end.
But now that the market rally has stalled, negative macroeconomic and corporate news could easily precipitate a reassessment of this whole green-shoots-growing-into-a-beanstalk idea that a recovery has begun.
Cornered
This means the Federal Reserve's predicament will become even clearer. Given the path it has chosen, the Fed will have to print even more money. That's likely to mean upping its quantitative easing at some point, as Treasury yields have ratcheted up and mortgage rates have followed suit.Weighing in on the subject, a knowledgeable source I often refer to as the "Lord of the Dark Matter" told me: "Make no mistake, it is a total disaster, with most banks now offering 30-year fixed (mortgages) in the mid- to high-5% range, and then only for the best FICOs. Then again, it was tremendously naive or, more likely, arrogant in the first place to assume that you could indefinitely run a public sector borrowing requirement of 13% of GDP and keep mortgage rates down at a level that induces a massive, permanent refi boom."
In any case, due to the ramifications (both present and future) of the Fed's money printing, it has now resorted to the jawbone policy. The Fed thinks that by talking tough enough, it can boost its credibility and get bonds to rally (lowering rates), thus wriggling itself out of the box. But given the damage wrought by its own hands, that will be hard to do.
Thus, somewhere in the not-too-distant future, the Fed is liable to find itself back in the position of needing to create more stimulus. (To the extent that stocks are weak, you can be sure that the Fed's tough talk will evaporate.)
Baby boom busted
On the subject of putting the green shoots story into proper perspective, there was a terrific article in the June 16 edition of USA Today headlined "For Boomers, recession is redefining retirement." It says:"The 77 million Americans in the Baby Boom generation face an economic storm: The Wall Street meltdown trampled their retirement nest eggs more than any other group. After losing jobs during what they thought would be some of their peak earning years, many are struggling to get back into the workforce. Health care costs are rising, and declining home values mean they might not be able to count on home equity to guarantee an easier retirement."
That pretty well sums up the problem that's faced not just by baby boomers but by many others.
The article makes a point that echoes what I have said many times in the past: You need not have acted in any way irresponsibly (though many did) to find yourself in trouble.
Among the unemployed workers interviewed for the article -- described by the reporter as having "planned perfectly and saved enough for their retirement" -- was an individual who offered this picture of himself: "I was the poster boy for what American middle-aged people should be doing." But he lost a pretty good job at AT&T and now relies on his wife's income.
From Greenspan to pink slip
This gets to the root of the problems we face going forward: the inability to create good jobs.The twin bubbles spawned by former Fed chief Alan Greenspan, in technology and then in housing, marked an era in which capital was misallocated. Many jobs that were created then and subsequently lost will not be returning. (To say that these twin bubbles ruined many lives is probably an overstatement, but to say that Greenspan altered many lives in a very unfavorable way is not.)
The No. 1 priority, if our country is to get back on its feet, is to figure out ways to create real jobs. Of course, what comes before that is having businesses that can create the profits to create those jobs.
At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.