Real Estate Investment:The Marathon

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This has been a good week for the economy. The jobs report for November was better than expected (unemployment rate down to 10, only 11,000 jobs lost) and Bank of America is paying back billion in TARP funds to the government. In addition, the Beige Book, the monthly compilation of business condition from the regional Federal Reserve banks, carried remarkably upbeat news. So why are we still feeling so bad? Why was Black Friday so ho-hum? And what will the future hold?

To explain all this, I need to indulge in a bit of a diversion. Big city marathons (New York, the Marine Corps, Chicago) attract thousands of runners. The fastest get to line up close to the starting line and the recreational runners bring up the rear. Those in the rear may not actually start the race for 30 minutes or so after the ones in front. Considering that the winner will cover the twenty-six plus miles in a little over two hours, that means he or she will have finished a quarter of the race (about seven and a half miles) before the last runner crosses the starting line.

Think about this recession and recovery—yes, we are in recovery—as a marathon. The front runners are the financial institutions. They are considered to be so vital to the economy that they are placed at the front of the pack. The average consumer brings up the rear. As with the marathon, media coverage is focused o the front runners, not the stragglers. Hence, we learn about the profitability that allows Bank of America to pay the government back, and we learn (as we will soon) that the GDP expanded again in the third quarter. That doesn’t reflect the fact that the average household hasn’t even started the marathon yet.

But unlike the major races, we are able in this recession to move some of the slow footed up to the front as special VIP runners. So, that auto companies get special loans and a beneficial trade in program (cash for clunkers), and first time (and now repeat) home buyers get tax credits. This jump start allows them to race ahead of the pack and participate in the joy of the front runners. Meanwhile, the consumer stays behind. That consumer is focused on getting into the race, i.e. getting or keeping a job, paying bills, putting food on the table. The extras, like Christmas gifts and vacations, might be attractive mid race, but not now.

OK, I’ve tortured that metaphor enough. The bottom line here is that all the economic data we are seeing points to the fact that both TARP (a Bush program) and the stimulus (an Obama production) are both working. The net is that we are returning to growth in both the economy (now) and employment (soon). It is likely that there will be pressure to move faster and we may see other runners moved up in the pack (weatherization tax credits, anyone?) and a second stage stimulus. But the point has been made: In 2010 we all be running the same race