about Jim Scott

This recession gets more curious by the day. After two days in the Big Apple, all looks well. Try walking past the array of consumer icons on Fifth Avenue.

Maybe it is just mid-westerners gawking at their social betters or perhaps something worse. Manhattan, most of it at least, looks fat and sassy.

Today we are going to take the Staten Island Ferry and explore this outer borough, oft forgotten in film and literature. I want to take a look at the other NYC, the slice in the middle.

Speaking of slices, I have not been to Ray’s yet and so far Bronx Pizza in Hillcrest has not been topped. I love slice pizza as the ultimate street food and thus far I could stayed home.

This has been a perfectly horrid month for stocks and residential real estate. Here in San Diego we get the added bonus of coastal gloom until about one in the afternoon, so this has not been a pleasant month.  I think we are in for more of the same this summer.  Americans are too busy eyeing the life rafts.  I have never seen such pessimism around.

This is my fourth recession and there is one trait they share in common.  At the bottom of the cycle, or near it, it seems one tends to believe that matters will never improve.  This of dispair is probably a good place to be these days and I know most people have visited there.  The good news in that mentally there is no where to go but up.

I have to always remind myself of my past travails. Recessions do end even though that seems a very remote and distant possibility given the bleak outpourings from the 24-hour news cycle. As I like to say, surviving is winning and that truism should give everyone a spiritual break this summer. Go to the beach.

OK, I admit running to the bunkers this week.  First, lightened up mid-week on some stock positions, fearing more downward movement on the Street.  The rebound, spurred by the Germans who agreedto apply a financial band aid to Greece.  The problem is not solved so maybe my caution was advised.

Google punched below $500 and Blackberry(RIMM) slid under $30.  These tech darlings are perhaps running out of steam or perhaps the possibility of no more Fed-pump priming is starting to worry investors.

Over in the real estate sector, the volatility in the financial markets is hurting the upper end of the residential real estate market.  Since the downdraft began in May, the phones have gone quiet.

Me? I am going on vacation.

Last week’s Time has a great cover story on the economy.  We have all been fed a steady of journalism on this subject since the Great Implosion of 2008.  This article, while scary, contained one fact I would like to know more about.  The author says it would take up to 30 days for half of all Americans to muster up $2,000. The 30 days is the time required to sell possessions to add to the available cash to come up with two grand.

This statistic, if valid, says much about our economy and our culture. Half of all Americans.  I suspect every reader of this has had a dental bill of $1,500 or a car repair for the same amount.  Four tires? A vacation?

What this says is that one out of every two Americans is very poor in terms of net assets.  Our savings rate is not 5%, up from 1% in 2007, but that is all coming from the top half of the economic food chain.

I have heard the political rants about the mal-distribution of assets and wealth in this culture. All other statistics aside, this one sentence buried in a long article is all that is required to fully understand the depth of our economic problems. Unless everyone consumes jobless rate will have no place to go but up.  It is nice to have money, but how many Rolex watches can you wear at one time?

Another bad week on Wall Street comes to a close.  Dropping below 12,000, the Dow has been on a real losing streak.  It is probably no coincidence that my business has been slow for the past five to six weeks.  Americans are always looking for something to worry about and there is no shortage of ugly news stories about the economy.

Of course, I am speaking of those that actually have assets to worry about. Since 1981,  this country has made this cohort smaller, albeit richer.  The idea of killing the middle class was not the desired outcome when the trickle-down theorists dominated the Reagan administration. 

But the result cannot be argued about. The middle class, so lauded and storied in political rhetoric, is on the run and in danger of extinction. Tax policies put in place starting in 1981(and to a certain degree in 1978 with the passage of Proposition 13 in California) have encouraged a two tiered economic system; those who have and those who shop at Dollar Stores.  The latter group need not worry too much about a shrinking portfolio because they are not investing but existing.

Still the Street counts.  The trickle-down theory should operate today when it comes to jobs but instead American businesses are sitting on their 1.9 trillion dollars.  The Fed has flooded our world with liquidity but businesses just paid down debt and banked the difference.  Individual households have done the same; household debt was 135% of annual income and has dropped to 115%.  It used to run around 90% so it appears we have a way to go.

This means more unemployment downstream.  Governments at all levels need to act and cutting jobs and services is not the answer.  Taxes have to go up but you know that is the third rail of politics. But it will take something to get that money off of the sidelines and into play.  Most of it is there precisely because of the actions of the Fed and the government.  It is time to call the note due.  Exactly how to get that done I will leave for others.  That is why we sent them to Washington.

Sixty-seven years ago a force of 3 million began a invasion of Hitler’s Fortress Europe. A smaller number of men, organized in rifle companies and platoons, represented the tip of the spear; infantrymen who waded and jumped into Normandy on that day.  They have been immortalized in books, movies and TV specials, and this is how it should be.  Their individual actions on the 6th of June are part of our national mythology and identity.  This is because on D-Day, America became more than the sum of her parts.

But without the individual, all of this would have failed. It is interesting to consider the stories of ordinary people caught up in an historical moment, soldiers who somehow found the courage to step out of a bobbing boat into the cold Atlantic and face a worldly version on of Hell. Fear and courage are bedfellows in this circumstance.

I have come to learn something about one such soldier, an Army infantry company commander from Cedar Falls, Iowa, by the name of Frank N. Fitch, Jr.  He was killed in the early morning hours, first wounded by two land mines and later killed by artillery or mortar fire.  According to accounts, he died doing what countless other junior officers and senior non-coms must have been doing, standing in harm’s way getting armed young men to leave the false safety of a landing craft and run onto a beach into what must have been a hurricane of bullets and shrapnel.  

For his efforts to move 150 frightened men forward he was posthumously awarded a Silver Star. As noteworthy as this is, the back story is probably more interesting. How this man, at the age of 32, ended up dying on this beach on this day is a story of fate, duty and war and deserves to be noted and remembered by the rest of us.

I know about this particular soldier because my son, a high school junior, won a trip to Normandy to study the invasion as part of a National History Day project. Each of the 15 students selected nationally were to study one veteran who perished that day and my son was assigned Captain Fitch. I perused his research along with many personal items sent to my son.  In viewing these letters, records, first-hand accounts and photographs, the historical record of this man, you get to know him a little bit. 

His path is  interesting because his story is representative of the American experience of World War II.  Frank Fitch’s story, of what little I know of it, is very representative of the period. Born in 1915 in the heart of this country. Graduated from Coe College in 1933.  His graduation announcement listed everyone in that class. I wondered as I held the small booklet, who on that list also went to war. He and his family ended up in Anahiem, California, and from there a commission in the Army.  He was an reserve officer, and I am sure this duty came naturally to him.  Along the way he married but had no children. I know his wife stayed in Anahiem.

Still it is personal. Sitting in my car outside of the Fedex office, I found myself not wanting to part with the personal memorabilia generously loaned to my son by Mr. Fitch’s distant nephew.  In reviewing my son’s research, I got to know Captain Fitch a little bit and as such developed a great respect and admiration for him.  And by extension, a greater respect for that generation.

The New York Times and USA Today ran stories yesterday about the widely anticipated Case-Schiller numbers. The results came in and the stock market took a 279 point hit. I know the jobs numbers were disappointing, but nonetheless, it shows two things. First, the Street is a very nervous place with thousands of people looking for any reason to sell. Second, housing leads full recoveries(meaning job growth as well as corporate profits) and these results meant a very good reason to sell.  

The Street is not a great place for the faint of heart. The roller coaster ride over the past four years has been scary most of the time.  Real estate, even taken into account the price drops over the same period, is poised for a comeback. At some point, the sheer weight of those needing roofs will force even the most timid buyer off of the sidelines.

The alternative is to rent, but that is going to get a lot more expensive soon. I predict rents will begin increasing at several points over inflation by the latter part of the year. In San Diego at least, there is not enough residential real estate slack to meet the growing population.  Sooner or later the laws of supply and demand will start to work, no matter what the jobless rate is.

Real estate is local and San Diego’s prospects look far better than those in place like Iowa or Las Vegas. That alone should give prospective buyers some comfort.