I’ve been working in the financial service industry for almost 30 years. I have been very interested in macroeconomic issues as well as financial markets for all of that time. I can’t remember a time when there has been so much division in opinion among those who earn a living providing those opinions. And for good reason. The things going on in our economy today defy logic. Consumer debt is sky high. Consumers are beginning to show rising delinquencies in both car and credit card payments. However, consumer spending continues to remain a driver of the seemingly gravity defying GDP numbers.
Unemployment remains pegged to the floor right now. But a deeper look under the hood indicates that there are some major disparities between the household surveys and the payroll data.
The commercial real estate market is a mess right now, with owners walking away from their investments and handing the keys to the banks. And yet it appears, by everything that I see day to day, that banks still have sufficient liquidity to continue to want to lend.
Bankruptcy filings are climbing quickly. And yet, when I speak to my commercial real estate partners, all the businesses they work with seem to be faring pretty well and it appears that it is not a great time to be a workout banker, waiting for the phone to ring.
Whatever is going on can’t continue in this manner. Either there’s going to be a reckoning or we’re going to soon blast out of the rough patch we seem to be experiencing right now. These very different outcomes make portfolio positioning a big challenge. I personally believe there’s a lot of management being done in order to minimize any damage during an election year. Once we get past the second Tuesday of November I strongly suspect there will be a reckoning for the things going on right now.