2009 Economic Trends: US Economy to hit bottom in Jan end and rebound starting March

Even though economic data do not support rebound of economy as early as march begining. Based on my own analysis

• I strongly believe that economy will hit bottom by January end or Feb mid. And will start recovery begining as early as march.
• oil will hit bottom of $30 around Jan end and starting march will stabilize between $50 to $60.
• Dow will cross 10K.
• And most of all capital flow in the economy will increase.
• I trust infrastructure to be the fastest growing sector in North America in next 3-4 years.

Analysis:

US is consumer economy.

1. Analyzing the root causes of this economic crises. The root cause is housing market or in other words inability of people/buyers to pay mortgage.

going back 5 years with onset of outsourcing and globalization. Companies started laying of employees and exporting jobs. Loss of job means less spending, less spending means less revenues for the companies (including one which laid of people), less revenue means more layoff and hence creating downward spiral.

Now the people who lost jobs, decided to enter real estate business to make money, as banks and mortgage companies were aggressively developing new products allowing people to leverage more than capacity. And this whole thing started when buyer's limit got saturated resulting in sharp decline in demand. Decline in demand troubled short-term investors as they were not able to sell.

There is four dimensional anlaysis for my projection:

1. Now, looking forward, small businesses in US economy accounts for 40% of employment. Small business were down 80% in 2008. As per estimate 50% of these businesses will close in next 6 months if economy does not improve. Government is bailing out large institutions but there is no capital infusion in small businesses leaving them no option other than closing. Now, with President Obama who is focused not only on large corporation but also on small businesses, sentiments among Small Business owners and employees which is 40% of US work force will improve, resulting in increase in consumer spending. Which will stop downward spiral and support rebound.

2. If one closely analyze President Obama's last 10 years strategy and actions, you can easily see the influence of President Lincoln. Infrastructure industry grew significantly in Lincoln's tenure creating thousands of low and middle class jobs boosting economy. As per my analysis infrastructure industry will again flourish in Obama's tenure creating thousands of low and middle class jobs. In other words putting back those people back to work whose job loss initiated the problem.

Once President Obama will take office, I am confident he will declare policies supporting not only large and small business, but also about creating employment, which will immediately boost consumer confidence and hence possibly increase consumer spending. In my opinion, the cause of economic crises is lack of consumer confidence and consumer spending, and revival of consumer confidence will be the revival of US economy.

The analysis is supported by bottom up quantitative analysis industry by industry and then aggregate the results. Did some regression analysis to determine the coorelations between some of the qualitative factors I mentioned above combined with major (42) macro economic factors against industry, consumer spending, and GDP growth.

Should you have any further question, I would be happy to discuss.

Palak
pjain@cleartrade.net