Next month, September 15 will mark the five-year anniversary of the bankruptcy filing of Lehman Brothers. While many were hoping for a typical recession recovery, it still feels as though we are stuck in a listless economic environment, repeatedly taking two steps forward and then one and seven-eighths of a step backwards. Looking across the globe, this year we took two steps forward with:
- A housing recovery that appears solid with building permits, housing starts and building completions up 12.4%, 20.9%, and 15.0% respectively, in July 2013 compared with 2012
- A U.S. unemployment rate of 7.4% in July 2013 compared with 8.2% in July 2012
- Some semblance of economic stability in southern Europe with the 10-year Greek borrowing rate declining to approximately 10% in August 2013, down from over 20% in August 2012, and the 10-year Spanish borrowing rate declining to approximately 4.5% in August 2013, down from approximately 6.6% in August 2012
However, it also feels as though we’ve taken one and seven-eighths of a step backwards with:
- Implications from the expected termination of quantitative easing in the U.S. and abroad in 2014 such as the increases in corporate and home loan interest rates
- Brazil’s government increasing its key interest rate for the fourth time this year to 9% in an effort to curb inflation that is currently running at 6.15% per annum
- Continued failure of the U.S. government to address basic, yet substantive issues, including the debt ceiling, long-term social security and Medicare solvency, and Obamacare details
- Increasing risk of financial uncertainty in China caused by poor lending practices of the government-controlled and “shadow” banking system that increasingly looks to be a drag on future Chinese growth
- Increasing political uncertainty in the Middle East, especially with the latest events in Syria
Tailwinds look like they may be coming from Europe’s turn out of recession and the U.S. economic engine driven largely by energy and a revitalization of housing, but we are keeping an eye out for global events that could cause business executives to focus on the aforementioned negatives and, once again, tighten the purse strings.
The green shoots are there, but proceed into 2014 with caution.
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