As I drive down Melrose Avenue and Robertson Boulevard, I am astonished by the number of for-lease signs. Known for high density and low vacancy rates, West Hollywood, Beverly Hills and Brentwood are good predictors of the local economy.
Los Angeles hotels, restaurants and department stores are hurting. Luxury hotels throughout the city are offering deals because of low room occupancy. The Hilton Hotel Corp. headquarters is moving from Beverly Hills to Virginia to lower costs. The median home price in Los Angeles County has dropped 35 percent since January of last year.
Given the grim picture thus far, we will probably continue to be in recession for the full calendar year, and things will continue to decline further with no stabilization in sight until mid- to late 2010. There are several major factors that lead me to this conclusion.
First, consumers are going to save more and spend less. With fears of continued job losses, depletion of wealth and lousy credit conditions, consumers will continue to tighten their belts. Consumer spending is a major pillar of our economy and as consumers continue to tighten up, more stores will close, fewer goods will be produced and volumes will undoubtedly shrink, causing the economy to continue to contract.
Circuit City is liquidating. Macy's is closing stores, one of which is located downtown in the Citigroup Plaza. Saks recently announced that it is slashing prices on luxury goods.
We need a stimulus package, but the stimulus package passed last week is simply a pork-laden, misguided piece of legislation. There isn't enough job-creating stimulus that will have a long-term effect on the economy, and this will be one of maybe two or three packages that will be required going forward. This is of major concern as the deficit is ballooning, and at some point, interest rates will have to increase dramatically to attract buyers for all of our debt. This stimulus package is creating more debt that will have to be paid by the future generation. Stimulus must include incentives for investors and businesses to take risk.
Giving tax breaks to anyone who profits from the purchase of stocks or bonds purchased in the next 36 months at a dramatically reduced tax rate would give people additional incentive to invest in the markets and would certainly move confidence in the right direction. Fortunately, the Federal Reserve is going in the right direction by lowering rates and not pushing the financial institutions to unload everything at once. They are providing ample time to the financial institutions to work through the problems, similar to the 1980s when the Fed allowed banks to hold on to their bad foreign debt until they worked through it. Had they all been forced to write down to true levels, most banks would have failed.
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