Zimmermann's Take, Part 1
Analyst talks recovery, austerity, why Obama's reelection rests on bull market
Published in CSP Daily News
JERSEY CITY, N.J. -- He's bearish on the economic recovery, bullish on natural gas and realistic about the Fed's ability to steer the United States away from a financial cliff.
A hallmark of convenience store industry events and a trusted advisor to many of the industry's leading retailers, Walter Zimmermann, chief technical analyst with United-ICAP, Jersey City, N.J., is also famous for his accurate economic predictions. In a wide-ranging, exclusive interview, CSP Daily News asked Zimmermann for his thoughts on the economic recovery, energy prices and the election. In this part one of the interview, the analyst discusses the state of the U.S. recovery and lessons from the European austerity method.
On the Economic Recovery
The re-employment numbers that are being celebrated are so pathetically small that they're almost statistical blips. The rate of re-employment will take another seven to 10 years to go back to 2007 employment levels. If that's the recovery, then what's the next recession going to look like?
Plus, housing prices continue their decline. Maybe the volume stepped up, but that's because of forced sales. What matters to me is price. It's not housing starts, it's not homebuilder optimism or mortgage applications--it's the price, because nothing deflates the economy as powerfully as falling real-estate prices.
That's a big negative. Even if you have a job, you've either lost a home, are at risk of losing it or are underwater on your mortgage. These are not things that spur economic recovery; these are not things that spur consumer spending or consumer optimism. And they're not things easily remedied either. After Spain, the United States had the biggest real-estate bubble on the planet, and it takes time to work off such a huge excess.
Our view is: It's going to be another few years before we see solid evidence of a sustained economic recovery. In the meantime, the situation in Europe threatens to drag us right back down into recession.
On the Government's Handling of the Economy
The Federal Reserve has been trying to stimulate the economy, pour in liquidity on the theory that banks will lend it out. But banks are terrified of lending to consumers so they've been trading that money--buying commodity, buying the stock market. And this is part of the Fed's strategy to re-ignite fear of inflation, because if you're afraid of inflation, you will spend today instead of tomorrow.
You have a situation where the Fed's efforts to re-stimulate the economy have further squeezed the middle class. They have still-falling real-estate prices. Either they don't have a job or they have high job insecurity, and now they have to pay more for everything because the Fed wants to re-ignite inflation. To me, this is not the way to a recovery. But there's not much else the Fed can do.
However distasteful, it does seem like bailing out Detroit and the car-makers have kept people employed. It seems in retrospect they had to do something to salvage the banks, otherwise we would be back in a barter situation right now. But the banks are even bigger than before--if they were too big to fail then, now it's even more the case.
On the European Debt Crisis
In Europe, it's been austerity only, and it has plunged the whole Eurozone back into recession. Realistically, Greece, Portugal and Spain are in depression. The medicine has been austerity, not job creation; it's been austerity, not stimulating the economy.
Here in the United States, it's been stimulating the economy and not austerity. That super committee couldn't agree to any cuts in spending. That's been a plus. You can see where we would be right now if those calling for austerity had had their way; we would already be back in recession as Europe is. Maybe our recovery is flaccid and disappointing, but at least you can see hints of a recovery, and there is not a hint of a recovery in France, Italy, Spain or the U.K., which just went back into recession.
On the 2012 Presidential Election
I said if the French stock market sells off, [French president Nicolas] Sarkozy loses. Well, guess what? The stock market did sell off from there, and Sarkozy did lose. That's a message for President Obama: If the stock market sells off going into November, he loses. If it stays where it is and stays elevated, he wins. He might even get a landslide if the stock market can recover by November.
Whenever an incumbent is re-elected in a landslide, it's because the stock market had been up by 20% in the prior two years. There had never been a case where big stock market recovery and the incumbent did not easily win re-election. But if Europe unravels, the dollar goes up and the stock market goes down, then President Obama is in big trouble.
Watch for Part 2 of this feature, in which Zimmermann weighs in on gasoline prices, energy independence and faulty predictions. And read Zimmermann's take on why today's high gasoline prices may actually be better than the alternative in the special State of the Industry issue of CSP magazine.