In the fifteen years of my financial career, I have never experienced anything like the past calendar year. One year ago, the markets accelerated into a free-fall that culminated in the low of March 9. There are a lot of similarities between this period last year and today, but there’s a lot of differences as well.
The political posturing and rhetoric in the first quarter of 2009 is very similar to what we’re seeing now. And its impact on the markets is predictably similar. The stock market is not sure what the rules are. In the absence of this certainty it will sell off and park in cash. The dollar is negatively correlated to the market and to commodities and it is still perceived as the safe port in a financial storm.
Which begs the questions: is this a new storm developing on the horizon?
It’s definitely raining on financial markets over the past week, but it doesn’t even compare to Hurricane Fannie and Freddie of 2009. The Great Recession is over and the recovery is underway. It will proceed in fits and starts and it will not create much in the way of jobs, but the global economy is expanding. For real economic growth to happen and good jobs to be created, small businesses must be nourished and that’s not a priority of our public policy.
Every company on the stock exchange started out as two guys in a garage with a good idea. They started selling the good idea and had to hire people to fill their orders. Two guys became ten guys in a year, which was a 400% increase in their labor force and an even higher increase in revenue. The beauty of this invisible hand is that something is created out of nothing. A service or product happened that wasn’t happening before and new jobs were created as a result. More than 90% of job growth in the United States comes from small businesses and a similar percentage of Americans work for small businesses.
The biggest incentive, or disincentive, for small business owners is taxes and regulatory hurdles. There is a tipping point for every entrepreneur where they decide the risk and the effort to be in business is worth it, or not, and their decision impacts the lives of real people, their employees that depend on them and the public which purchased the product or service. It’s costly to maintain a team of tax and legal advisors to keep up with the tax code, manage liability (tort reform would transform our economy) and ensure compliance with government regulations. Unfortunately, Congress is extremely willing to add to these burdens, which makes a jobless recovery a very likely scenario for 2010. Because the resources expended to meet those burdens will not be used to grow our economy and create new jobs.