The economic mood in Miami can be characterized in two simple and blunt words: Very depressing.
A sharp decline in the housing market has now spilled over into the commercial real estate market. Every trip I take to this “fast” city, I see more and more “for sale” or “for lease” signs on commercial buildings.
There’s a big worry that many of the condominium buildings that are nearing completion will have difficulty getting their buyers to close their deals. Realtors are not out partying anymore over fat commissions, business in high-end restaurants is down sharply; anyone related to the construction or home-building industry has been economically affected. Other businesses are also starting to feel the pinch.
The high-end restaurants, retail stores, businesses and realty offices I visited are all complaining. Yes, a recession is going on in South Florida. But just as apparent as the economic situation is the sense of caution I get from talking to business people — they are simply worried about how much more difficult the economy in South Florida will get.
Is there opportunity in the Sunshine State for investors? Definitely; there is always opportunity in the face of uncertainty. (And this is how I have made most of my money — being contrarian and buying assets or investments when no one else wants them.)
Let’s travel fast, over one thousand miles, from Miami to New York — and we can see cracks starting in the New York economy, too. Mighty Merrill Lynch & Co., Inc. (NYSE/MER) reports that it lost over $2.0 billion in the first quarter of this year alone. The company said that it is cutting another 3,000 employees from its payroll.
Yes, the manufacturing, construction and financial services side of the U.S. economy are hurting most. But there is a flip side, as there always is.
Google, Inc. (NASDAQ/GOOG), a company with no real assets but plenty of technology, beat “the Street” and reports that it made an unbelievable $1.3 billion in net income in the first quarter of 2008. Aside from its great technology, Google is doing wonders outside of the United States. In fact, for the first time in its history, sales outside the U.S. have accounted for 51% of Google’s revenue. What I’m stuck on is, if the backbone of the U.S. economy is suffering to such a degree, why is it that the stock market averages are not losing ground? Since March 17, the Dow Jones Industrial Average has gone up 10%. How does the world’s most widely followed stock index rise in the face of such economic uncertainty?
Recently, I wrote about how the number of stocks reaching new 52-week lows on the New York Stock Exchange has rapidly decreased. Yesterday, I wrote about the record amount of short interest on the NYSE and how that may send stock prices higher, as these shorts cover their positions as the market rises.
Yes, the mood in Miami is somber. Yes, the layoffs in New York are real. But the smartest investor in the world, the stock market, is telling us a different story. It obviously knows something us mere mortals don’t. Me? I’m taking my cue from the stock market and following it, not going against it.