Fox’s Liz MacDonald Predicts a Rocky Road Ahead

Just over a year ago, in the depths of the economic crisis, Liz MacDonald, stock market editor at Fox Business Network, was our Woman Around Town. At the time, her prognostications were anything but sanguine. Now that the markets have improved somewhat since then, we think an update is especially timely.

Unfortunately, Liz still sees a rocky road ahead. But, she’s quick to put it in perspective. “Remember, we had major bankruptcies in the last decade: Enron, WorldCom, Lehman Brothers, and Washington Mutual. Then there was the housing crash. These are difficult events to rapidly unwind.”

Liz is a realist. She knows the Federal Reserve has publicly stated that we won’t reach convergence on the employment front for 5 years. Meaning that it could be 2015 before all who lost their jobs are working again. Liz notes that the recovery largely will be hamstrung by housing. “We must remember that housing generally takes at least 5 years to gain a firm foothold,” she cautions. “The housing peak was 2005, so we may begin to see signs that things are moving forward at the end of this year.”

The Fed has been frustrated in figuring out the right course of action, and in a way has added to the crisis of confidence. “Trying to navigate through the bubble, it (the Fed) has used low rates and unprecedented borrowing, and the results are sluggish, at best. The thinking seems to be that keeping the dollar low compared to other currencies prevents inflation, but in reality, it ends up hurting taxpayers, since the alternative minimum and capital gains taxes are not indexed to inflation,” Liz explains.

Asked for her opinion on the bailouts, she cuts to the chase. “TARP initially was supposed to buy bad assets from the banks and leave management intact. Former Treasury Secretary Paulson’s view was that giving banks cash gave them a chance to earn their way out of the crisis. It came down to the question of hurting the banks or hurting the taxpayers.” We now know the answer. She adds, “The Fed appears to be in a permanent state of emergency,” reacting to the mood swings of the market rather than leading the charge to get the country out of crisis. “This long unwind could take a decade,” according to Liz.

Still, the spending goes on, and even more so on state and local levels. On that topic, Liz notes, “For example, state pension funds are jacking up the pension returns year after year for union workers. Corporate tax rates continue to climb. In fact, they are higher than in some European countries, when you factor in federal, state and local rates.”

The prevailing wisdom in Washington is that government is the solution. Liz is not so sure. “Our country was built, and survived for all these years, based on a ‘can do’ attitude. We seem to have lost our faith in the private sector. There’s a shortage of confidence,” Liz contends.

So many are quick to blame Bush. “But, the reality,” Liz points out, “is that Pelosi and Reid have been in office since the 1980s, well before Bush rode into town. And Obama was a state senator long before being elected to the US Senate in 2004. So, the blame game is over. The American people are done with it. And they are done with members of Congress who don’t bother to read the health care bill before passing it. They see right through Obamacare and recognize it as another way to raise taxes, right up there with wanting to tax everything that moves, even the estate tax.”

What about President Obama’s commitment to cut business taxes through 2011? “A one-year moratorium won’t do the trick. We have bigger issues. More and more of our $2.4 trillion in tax revenue is going toward paying down the federal debt. Credit agencies see that trend and are concerned, and a credit downgrade for the US could be near. It could be hard to avoid, given the anemic predictions for Gross Domestic Product. After revisions, we actually could have negative growth this year,” Liz observes.

Why haven’t the mortgage modification programs worked? “With unemployment so high, and job prospects dim, at best, people more often are merely walking away.” The conclusion then could be derived that it makes little sense to structure a lower payment; if people have no job, it doesn’t matter what size the payment is. They can’t pay it.

And China? Liz is quick to note, “We’ve all been in awe of China’s spectacular growth in recent years. But now, China is facing inflation. Their workers are grossly underpaid, so China will be forced to raise wages.” With so many people, the wage inflation numbers could be staggering.

But, Liz sees a silver lining. “There is an estimated 2 to 3 billion people in the middle class emerging to use the internet in India. In the BRIC countries (Brazil, Russia, India and China), there are approximately 600 million internet users but 1.8 billion mobile phones. Some say there could be 1.2 billion internet users in 5 years from the BRICS. That’s double the current usage.” These numbers bode well for us as the demand grows for our goods and services in these markets. “We are on the cusp of worldwide growth. The genius of liberty is the greatness of America. We are not a handout nation – it’s just not in our DNA,” Liz believes. We need to get back to basics as a nation. She believes we will – in time.

Read Liz MacDonald’s Woman Around Town profile.

About Merry Sheils (62 Articles)
Merry Sheils won the New York Press Club’s Journalism Award for best business writing in 2011 and 2012. As a portfolio manager for private clients, she writes a financial column for as well as features and profiles. She frequently writes economic and capital markets commentary, including white papers, thought leadership pieces and investment reports, for companies and investment managers. Prior to becoming a writer, Merry worked as a senior portfolio manager and investment analyst at BNYMellon and Wilmington Trust Company (now M&T Bank). A SUNY graduate with a degree in finance, she is the author of “Debt-Based Securities” and has been published in The Financial Times, Forbes and Chief Executive Magazine, and has appeared as a guest on CNBC. She founded First New York Equity, Incorporated, an investment advisory firm, and sold it to Price Waterhouse (now PricewaterhouseCoopers). She divides her time between New York City and her 18th century house in Columbia County, NY, where she is active in the North Chatham Free Library, the Old Chatham Hunt Club and the Columbia County Historical Society.