Elite Inside Trader

According to CNBC, “Federal Reserve officials are more pessimistic about prospects for economic growth and employment than they were two months ago”.  You think??  Of course they are!  All you have to do is turn on the news to know that we are so far from the global recession being over that even a rally in the markets (and a short lived one by the way) comes no where close to solving the catastrophic issues that Americans yet to face.  Unemployment is currently at 9.1% and isn’t expected to move much lower than 8.9% by year end.  With everything the Fed has tried to do over the past couple years, why is still so bad?

It’s very simple to understand, yet we’re not being told or discussing the “real root of the problem”.  In order for jobs to exist, we need healthy corporations that are in a position to hire right?  Wrong!  Corporations are in a very good position to hire.  As a matter of fact, they are sitting on a record breaking $800 billion  in cash, more than they have ever had so cash flow is NOT the problem here.  The fact that they are not using the stock piles of cash to hire is a clear sign of the pessimistic attitude they still have towards the direction the economy is headed.

So why aren’t corporations hiring if they’re sitting on all this cash?  It all boils down to demand in the economy.  There is simply not enough demand for companies to have to hire additional help right now.  No demand, no work.  So the best thing for them to do is sight tight on their billions of dollars of cash and wait for demand to pick up.  After all, they are running businesses, NOT charities.  They don’t just hire for the sake of hiring.  Sorry Obama administration, your incentives just aren’t good enough.  When the economy picks up again and the demand for labor surges, companies will have more than enough cash to start hiring again.  When will this happen?  When growth in the economy picks up again, and right now according to the Fed’s statement today, it’s doing exactly the opposite.

QE3 Not Likely To Happen

Thanks God!  Finally the Fed realized that printing money is not always the answer.  Not only has this driven inflation through the roof and the US$ down to record levels, but it’s keeping undeserving companies afloat that we’d be better off without.  Bernanke continued to keep interest rates at zero to incentive risk taking, but risk taking for what?  Again, corporations don’t just take unnecessary risk because it’s cheap to borrow money.  Besides, as mentioned above, liquidity doesn’t really seem to be the problem for them.  They clearly have enough cash.  And when Obama pushed through an $800 billion stimulus bill, extended the Bush tax cuts and added a payroll tax holiday, corporations still didn’t do much with it, and are most likely not going to until the root of the problem is resolved.  The “root” being lack of demand, and unfortunately no amount of money can solve such an issue.  If it’s easier and more profitable to do business overseas then that is where corporations are going to focus their energy and money on.

Which brings me to my next point?  Perhaps this is where most of the stimulus money is going?  If you were given $1,000 to move your business forward.  Would you spend the money in the United States to make $1,200 or in Asia where you could make $1,900?  Hmmmm??  I think I know where I would put my money.  And this is exactly what many international corporations are doing.  Yes, these companies are domiciled in the states so the money is being used to support their “American” business, but when the money is used to grow food chains, franchises, divisions, etc… outside the United States, guess where the revenue and profits end up going?  Back to the US?  No way!  It’s going right into the hands of the employees, governments and societies of the location the actual venue is located in.  Sure some of the money ends up coming back home, but it’s mostly corporate taxes and that only helps out, you guessed it, Uncle Sam.

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Tags: Ben Bernanke, Bush Tax Cuts, Corporate Taxes, Fed, QE3, Quantitive Easing, Stimulus Bill, United States, United States Economy