THE ECONOMY – AN UNVARNISHED VIEW
Posted by blackhawkbank on August 10, 2011
At Blackhawk Bank we recognize economic uncertainty creates fear. The following is a reprint of an all employee email sent by Blackhawk Bank President Rick Bastian on Monday, August 8, 2011. We think the perspective is easier to understand and more complete than most media reports. It also speaks of our commitment to honesty and education and thought leadership.
Our clients, and maybe even a few of us, are panicking. The Dow Jones Industrial Index closed down over 600 points today. That is on top of the stunning 700 drop last week. It is in response, in part, to the downgrade of US debt along with that of Fannie Mae, Freddie Mac and a number of old line insurance companies. The US economic recovery has been weak and very spotty, our fiscal situation is an unadulterated mess, and we have shown none of the political will to make the hard decisions to get away from borrowing forty-one cents of every dollar we spend and heading toward tripling the national debt in the ten years following Obama taking office. Add to the mix a European Union struggling with a debt contagion and weak economic numbers from a number of its nation states and you don’t get a pretty picture. Market confidence evaporates with broad-based uncertainty and we have an ocean of uncertainty. Here is my unvarnished take on things:
- There are no quick fixes or magic bullets. Governments have run out of money and are running low on options. The first stimulus was a bust. Easy money and low interest rates have failed. The market will continue to be volatile and the economy will move sideways, on a good day. We could be in this for a long time.
- There is a real risk of a double dip recession. The kind of hit to wealth that has occurred for the second time in three years is going to make investors, consumers and businesses very, very cautious. Many of our clients will see the progress made toward rebuilding their finances come to a screeching halt. None of this bodes well for an economy that depends on consumer spending for its engine of growth.
- Our political leadership, both the executive and legislative branches, have failed to demonstrate that they can solve problems and our confidence that they can ever do so spirals lower with each week. They continue to want to play politics and the blame game with what is really a simple math problem.
What then do we tell our clients? The same thing we told them last time there was a meltdown. Don’t panic. Be cautious but deliberate. Last time, a number of clients did panic and exited the market to maximize their losses and stayed on the sidelines to see the market recover without them. At the same time, they should be cautious about committing liquidity to major purchases or undertaking borrowing for anything that isn’t critical.
An old rule of thumb is that consumers should have six months of expenses in the bank. Not bad advice. The job market may become more uncertain. Companies learned the lesson of responding too slowly to the last recession. It is a lesson they won’t repeat.
I am not painting a rosy picture and I hope I am wrong. But when you give the “advice you need, for the life you want” it requires honesty, as unpleasant as it may be. We will continue to support deserving clients through this recession, if there is another one, just like we supported them through the last one.
What then does this mean for the bank? We remain profitable and strong and I don’t expect that to change, but the weak economy and higher unemployment will continue to present loan challenges to us. As I told the board of directors, “The good news is that we are running full speed ahead. The bad news is that it is in mud up to our knees.”
I would welcome your comments or questions.