Some economists are now referring to the shape of this recession as a “checkmark recession” as opposed to the typical “V” or “U” shapes that previous economic downturns and recoveries have resembled, according to economist and keynote speaker Chris Kuehl at Country Club Bank’s CMG March Madness Investment Seminar last month in Kansas City. Bankers from seven states listened as Kuehl, who is managing director of Armada Corporate Intelligence in Kansas City, explained that the nation’s economy has many moving parts and there is no simple answer to solving its current problems — despite what politicians might have you believe.
Kuehl said one reason for the checkmark shape is the unemployment rate, which is declining, albeit slowly. Kuehl said the state with the highest unemployment rate is Nevada and the state with the lowest unemployment rate is North Dakota.
“Nevada needs people to move out and North Dakota needs people to move in,” Kuehl said. But three main factors are hindering migration: dual-income households, home ownership (especially if people are unemployed and under water in their homes) and child custody issues.
Inflation is always a concern, especially when a country is trying to dig its way out of a recession. Oil prices, however, are more about internal politics in Iran than inflation or anything else, according to Kuehl.
“There is plenty of supply and there is no real demand issue,” said Kuehl.
He predicted a gallon of gas will probably cost $4 by Memorial Day, but $5-per-gallon of gas is nearly impossible. Kuehl also noted that in 2005 the United States imported 61 percent of the oil it consumed but today the United States only imports 44.1 percent. Of that 44.1 percent, more than 65 percent of the oil is from Canada and Mexico, not the Middle East.
Another component of the checkmark recession is consumer confidence. The consumer is still nervous and the uptick in spending during the holidays was a result of retailers slashing prices more so than consumers spending money, according to Kuehl.
Even with the economic recovery dragging, Chris Thompson, executive vice president at Country Club Bank, told seminar attendees that it is possible to make money on their investments in the current low interest-rate environment. In 2011, Thompson said, duration and high quality were key to successful investing. And most likely, the same products that were successful in 2011 will be successful in 2012 — high-grade bonds. Plain vanilla, high-quality municipal bonds are safe and sound and have miniscule default rates, according to Thompson. In fact, munis make up 47.1 percent of Country Club Bank’s portfolio currently, Thompson said. “We’ve never owned as many muni bonds in our history as we do now,” he said.
Incidentally, Thompson also said rising rates do more damage from lower levels and the Federal Reserve has the most to lose from rising rates because of its buying spree the last couple of years with QE1, QE2 and Operation Twist. Similarly, the Treasury also has a lot to lose because so much of the national debt is at the short end of the yield curve.
The biggest danger to bankers’ portfolios in 2012, according to Thompson, is the Home Affordable Refinancing Program. HARP allows borrowers who are current on their mortgages to refinance even if they are underwater on their homes. It applies to all Fannie Mae and Freddie Mac mortgage-backed securities prior to May 2009. Thompson said to be most concerned about premium holdings issued from 2007 to early 2009 with high loan balances.
In the end, Thompson told attendees to not let an ugly yield market stop them from investing. Cash is a poor option and should not be considered “safe” because they can do better.
Kari English is senior editor of BankNews.
Copyright (c) April 2012 by BankNews Media