McCain Says "fundamentals of our economy are strong" and I agree

It seems that McCain is still saying this in his stump speeches:

Delighting Democrats: "The fundamentals of our economy are strong," McCain reiterates at a Florida rally this morning, before noting that "these are very, very difficult times."

Dems love this stuff because economic doom-and-gloom is all they can run on now that Iraq is out of the picture. But I think you have to say that the fundamentals of the US economy are strong. The US economy is much more complicated and robust then just Lehman and AIG.

I mean the tech, energy, and the pharmaceutical/biotech industries in the US are still growing fairly well and we even had a GDP growth rate of 3.3 for the 2nd quarter mostly due to exports. Even the dollar is strengthening due to the European economy slowing. With oil prices and thus gas prices dropping to a 7 month low we may even see the consumer pick up slightly in the coming quarters.

Most companies have raised prices to cope with the commodity inflation and they will probably keep them at the same level so they might see profits pick up. Also notice that most of the corporate bankruptcies seem to be concentrated in the financial and construction fields. If the economy was fundamentally weak then you would figure they would be in all sorts of different industries and not concentrated like that.

It is true that the financial industry is currently in turmoil but I think they will emerge from the crisis in very strong positions. There will be far less competition in investment banking and thus fees could go up for future mergers, private placements, and such. These things will start to come back online next year and need to be handled by someone. There are only a few companies left that can do it and they will reap the lions share of fees.

Also large pools of capital will congregate in the remaining firms who have track records of making good money or keeping risks down like Goldman and JP Morgan. There will be no more 30x leverage to make record profits but steady profits will still be in the cards since competition has been reduced.

Even the non-government mortgage market will be dominated by a few firms that kept clear of the sub-prime crap like Wells Fargo and Bank of America. People will start buying homes again and the housing market should be on the mend by the first half of 2009. There will only be a few companies left that can give you a mortgage and all of them will have managed their risk correctly to have survived the crisis. In other words the strong, the careful and the smart will be the only ones left standing.

I think the only blow to this will be increased regulation from an overaggressive Obama administration. If he stays true to his Carter economy roots and raises taxes while things are just starting to come back around in 2009 then all bets are off. You will then be able to say "because of Obama's tax hikes our economy has been made weak." High taxes sink all ships.