Breakdown

Last week it looked like consumer prices are starting to break down: the core CPI turned negative (over three months) for the first time in decades. And small businesses seem gloomy about the economy, even as the recovery strengthens. What’s going on?

The two items are linked. When the real estate bubble burst a lot of banks lost so much that it threatened their solvency. To stay in business they had to raise cash and reduce risk, and they did that by cutting back on small business loans. So while we’ve cycled from recession to recovery, this has mainly helped larger companies.

That’s led to a situation where small businesses are hurting even while the economy is getting better, and employment is only slowly improving. Since small companies are the biggest employers, the lack of jobs is pushing down on prices.

While this is troubling, it’s nothing to panic over. As the economy slowly recovers, this does filter through, and prices will gradually move up. But inflation and higher interest rates aren’t likely to take off any time soon.

The economy seems like it’s “Waiting for Godot” here. Eventually, unlike the play, a full recovery will arrive.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T18:40:08+00:00 April 19th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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