New York City & The US Economy
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?


Seems like how New York City goes will be how the overall US economy goes.  Let me explain.


We all know the subprime economy -- meaning broadly the lower middle class who couldn’t really afford to buy a home without the lax lending regulations and historically low interest rates of the last few years and/or those middle class who could afford a home but really stretched using an ARM to buy a mini mansion to keep up with the Jones -- is now having big troubles which may in fact get worse before they get better.  But in America today, because our economy has grown so deep and varied as its expanded and matured, and after two decades of globalization, there are also many other economies out there, like an iPhone economy and a Learjet economy that are still doing well.  The Learjet economy (appropriating an Alger Market Commentary term) categorizes those wealthy Americans, like rock stars, sports figures, celebrities, corporate CEOs, high paid financial and other professionals, etc. who have enough money to go out and buy, own and  maintain their own private jets.  And the iPhone economy which encompasses all the above Learjet economy people, obviously, and those just slightly less rich and, of course, all their offspring.  All the people whom we see on planes and in airports on the way to Maui on vacation, etc.  Anyone  who have the financial wherewithal to buy the $600, now $399 dollar, iPhones for themselves and their kids. 


In other words there are a lot of sub-economies out there in America today but going forward it seems likely how New York City goes will be extremely important to how the whole US economy goes.  Let me explain further.  A report out last Thursday said Manhattan real estate is still red-hot.  That report is backed up by Jim Roger’s recent move.  Remember Jim Rogers?  Rogers started one of the first hedge funds with George Soros back in the 1970s and now says China’s where its at this century and thus is moving to Asia, after just selling his NYC townhouse for $16,000,000 (after buying it for $107,000 back in 1977).  New York city, which epitomizes the Learjet, iPhone economies and whatever other terms you’d like to use for the wealthy economic sectors in America, is the financial center of America.  And New York City as a financial center today is teetering on the edge.  After benefiting from the stock and real estate boom of the last few years, today we’re all waiting to see if the financial credit implosion since July/August of last year leads to massive layoffs or not. You see, today in particular, no one wants to be the first one to rock the boat, I mean announce NYC-based major financial layoffs.  Not after the recent Bloomberg report which lays the blame for the whole implosion in subprime on Merrill Lynch.  Reviewing quickly, back in July, after Bear Stearns announced problems with two hedge funds, Merrill Lynch sent out a margin call to Bear Stearns.  Exactly because, the article states, “Mother” Merrill Lynch called in securities and attempted to sell them (but couldn’t) the proverbial stuff hit the fan precipitating the whole unraveling of the securitized, asset-backed global subprime can of worms.  So your can see no one wants to start the ball rolling downhill around the key, major financial center of New York City, by being the first company to announce major job layoffs.  Most feel big layoffs would start the ball rolling downhill for the NYC economy.  That would have widespread negative ripple ramifications for the real estate market in New York city.  Which as of now still remains hot, sort of immune to the subprime crisis.  Why?  Because they are no subprime loans in NYC.  Today, you have to have big money to buy NYC apartments, etc.  You can’t just wing it.  Schwartz View:  Thus my view that going forward, if the economy in New York city turns down, say because of big layoffs from investment and money center banks, that will confirm a NYC recession and bear market underway.  The problem, as I see it, is that big cuts in financial employment in New York and elsewhere are inevitable.  Thus adding to the already overwhelming “weight of the evidence,” technically, financially, economically and now psychologically, that problems lie ahead.  But again one never truly knows the future, right?  So we watch for whether New York city can avoid big trouble or not as a confirmation of trouble everywhere.

Posted 01-11-2008 8:25 AM by Richard Schwartz