Are Positives Starting to Dominate ?
The folks at ISI are suggesting that the economic and policy data is beginning to become overwhelmingly positive. I am less sanguine then they are, and I disagree with a few of the bullet points (#1 especially).
However, it is a pretty long list of things that seem to be improving — or at least not getting worse:
• Housing starting to recover
• Labor market improving
• Credit expansion unfolding
• Low dollar
• Low rates
• Pent-up demand
• US mfg renaissance
• US energy sector booming
• Double-dip fears minimal so far this year
• Inflation receding around the world
• Europe financial strains have eased
• Liquidity is building in the world economy, eg, corporate cash
• There’ve been 83 stimulative policy initiatives announced around
the world over the past 5 months, eg, Indonesia cut rates
• The Fed has rates on hold at zero and is doing Operation Twist
• ECB is scheduled to further expand its balance sheet on Feb 29
by as much as + €1t
• There are no particular problems at the moment such as Japan
disasters, Thailand floods, supply-chain disruptions, gasoline
price spikes, and debt ceiling crises
What do you think? Is the data objectively getting better, or is this merely a selective list of positives?
~~~
What say ye?
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February 8th, 2012 at 9:17 pm
It bugs me that the BlackRock guys says investors should be 100% in stocks. That sounds a like a classic pump and dump warning, especially given Fink’s own behavior lately(as you noted), to me.
February 8th, 2012 at 9:23 pm
There are a few good forecasters who have also been sticking to the data and calling a turnaround – the guy who saw it first is Francois trahan of Wolfe trahan. Anyway, they are dead right. (ecri missed this one). We are whipsawing between inflation and deflation – at the moment I think we are relating. Global stimulus is taking hold – also lower oil prices have helped. The better it gets, the rosier the outlook, the greater the economic boom and eventually this will set up another fall in equities and back to deflation. Bullish equities now through August, barring tail risk event like Europe, Egypt etc.
As for us housing – it will be bouncing off the bottom in real terms for another decade.
February 8th, 2012 at 9:27 pm
This is the list at all tops.
February 8th, 2012 at 9:27 pm
It’s probably best labeled as a minor cyclical recovery within a secular bearish deleveraging cycle. I’d like to see something like this happen without having the world’s central banks emptying their tool boxes and various bags of tricks.
I think we all know this is not something that is self-sustaining absent the historic Fed accommodation, and that is probably why there is underlying skepticism. Furthermore, when you’re the global reserve currency, it allows you to buy more time before you’re eventually revealed as just another naked swimmer exposed by the receeding tide.
U6 unemployment is still nearly double what it was in 2007, and only a little bit below the recession peak. That number is still a form of truth serum on the real state of the economy.
February 8th, 2012 at 9:29 pm
No Prosecutions of the Bailout Crimes, Full steam ahead.
February 8th, 2012 at 9:31 pm
we may have to scratch Inflation receding around the world
http://www.marketwatch.com/Story/story/print?guid=DBC24E68-52C0-11E1-A6A2-002128040CF6
February 8th, 2012 at 9:32 pm
There are no gasoline price spikes? Up 40 cents in recent weeks in NY. Closing back in on $3.75.
February 8th, 2012 at 9:37 pm
All great news. The data doesn’t lie. If we throw another 3-4 trillion at this in the next couple of years we should be out of the woods. It’s a good thing deficits, jobs, and tax revenues don’t really count for much in todays manipulated markets. To hell with it, I’m going 100% in equities.
February 8th, 2012 at 9:38 pm
monetary liquidity, like rising water in a river is covering the rocks (problems) in the economy. Just like excessive inventory at an assembly plant facilitates production flow, excessive monetary liquidity facilitates economic flow. However, problems, imbalances, and inefficiencies are allowed to grow. It may be a long while before the problems manifest themselves.
February 8th, 2012 at 9:43 pm
Enjoy the good news.
My sense is that the November swap announcement whereby European banks can essentially print American money was a narcotic pain reliever, definitely dulling the pain, but still not sure about the wounds healing. But, it buys time. Combine that with ZIRP or near zero interest rates, and any present value of even mediocre future stock earnings looks pretty good, hence the equities firming. With inflation around say 3-6% and wages not keeping pace, nor CDs, nor investment returns (2011 S&P500 only up 2.5%), the slow loss in inflation-adjusted wealth, income, savings, and purchasing power to prop up the zombie banks means buy now, not later. Let’s hope the elites pulling this off to save the system know what they are doing, that it works, and is temporary. This is the veiw from America’s Dairyland.
February 8th, 2012 at 9:46 pm
louis has it right.
The consequences of criminality in high places are still the 8oo lb. psychopathic gorilla sleeping off a hit of Thorazine in the living room (in keeping with the Kant/Hume article: I’m pretty sure that SOME effect will result from that cause, and furthermore, that it won’t be good). When that mean MF wakes up, he’ll be hungry and hung over. As long as the medication lasts, we’re good.
Party on, louis!
February 8th, 2012 at 9:49 pm
It’s only through positivity that this situation will right itself. Overall negatively drives a self fulfilling proficy. We get what we see, at it’s most basic elements. If we see the world and our circumstance improving we will have the faith that drives this to occur. There’s a world of good ideas, good people, and positive change. We just have to see it.
February 8th, 2012 at 9:55 pm
Prophecy, not proficy.. Was thinking of the software, though there could be an allegorical inference there.. Anyways, we need an edit feature :)
February 8th, 2012 at 9:58 pm
hey, it is an election year Only GWB could screw up an election year.
About housing
I’ve been looking for another house.
One thing I’ve noticed different this year the banks are not trying to find a sucker before they yeild and drop the price. They are pricing them to move from the get go. I have run across a couple of ” I can’t believe this price” houses that I was a day late on. But I only need one so I can be patient.
February 8th, 2012 at 10:05 pm
The negatives have been hashed out and dragged out. Greece won’t be allowed to fail a la Lehman. The piigs all know it. It will go down to the March deadline anyway to encourage reforms. May be some tense moments before then. There will need to be a significant shock to stop this run, so long as the consumer demand hold up.
February 8th, 2012 at 10:06 pm
@funkright,
exactly, all we need is a little CONfidence – usually works like a charm, eh?
February 8th, 2012 at 10:10 pm
Have to admit most of that list is true. Issues with a few points. Would also add declining savings rates as a positive (for a short term rally), which seem to have helped the recent turnaround in the lagging retail spending indicators. While I’m secularly bearish until we finally face reality, this rally seems to have legs. Bullish percentages running around 70 right now suggests a nearer term top. Question is how the pending consolidation / selloff looks from the internals of volume and breadth. As one asset manager that I met with today said, “the market is priced for perfection”…but if the news continues to be less bad and Greece gets resolved to buy another 6-12 months, especially as a precursor to LTRO II, the market seems to want to go higher.
February 8th, 2012 at 10:19 pm
@BR
“• Inflation receding around the world”
I know these are not your bullets but a little bit of google easily debunks that bullet:
http://www.businessinsider.com/inflation-around-the-world-2011-10#
Sure it all depends on what your definition of world is…
“• Pent-up demand”
I missed that Gallop poll where they ask you if you have any pent-up demand. I mean really how is that measurable to put it there as a factual bullet?
February 8th, 2012 at 10:20 pm
trend is your friend. There is a reason why so, all the people in the know are aware of everything being done to stablize europe and as well as USA policies. Hence they started this rally which leads to a trend. But history proves it even they do not know the black swan, which maybe some crazy greek politician refusing the blink and leads to default and chaos.
February 8th, 2012 at 10:23 pm
All analysis aside, it finally FEELS upward to me. I forgot what it felt like. Animal spirits and all.
Europe still seems like a muddle through, and the mid-East is F’ed (but what else is new).
But everyplace else I look , I see good things, or at least, less bad things.
February 8th, 2012 at 10:25 pm
• Housing starting to recover (generally?? in ‘pockets’? maybe, depending on..)
or..
http://patrick.net/
http://dissidentvoice.org/2012/02/why-the-ags-must-not-settle-robo-signing-is-just-the-tip-of-the-iceberg/?source=patrick.net
http://www.washingtonpost.com/business/capitalbusiness/delta-housing-market-momentum-slows-in-washington-area/2012/01/30/gIQAjn29rQ_story.html?source=patrick.net
February 8th, 2012 at 10:37 pm
Business wise Q4 was nothing all that special but for some reason our business has definitely picked up in January and February.
Speaking of positives. I am feeling really good about my portfolio and admire it a few times a week that is usually my leading indicator to sell.
February 8th, 2012 at 10:40 pm
First of all – agree we’re bouncing. Nothing goes straight up or straight down, someone once said.
But.. Is even more central planing and cronyism a positive? Seriously, comrade bernanke ‘coaxing’ risky investment from conservative savers? i.e. robbing the middle class for years and making the 1%-wallstreet-ceos even richer? All I’m doing is paying off my house and getting the f’k out of paper and financial assets. Screw you, comrade. It’s a rigged game. It’s not shared sacrifice, it’s cronyism. This country is rotten to the core.
February 8th, 2012 at 10:51 pm
Bring back
- Mark to market accounting
- Bill Black to prosecute the banksters fraud
then talk to me…
February 8th, 2012 at 10:54 pm
Well BR, you asked for it: “What do you think?”
I think that, until you come clean with the Whole [sic] Truth about your hidden secret about Hank Paulson,
that you are not trustworthy.
Your bad.
February 8th, 2012 at 11:41 pm
The multiple gaps on the NDX out of the October lows suggests somewhere down the line we are going to give back most of these gains we’ve seen the past 4-months to plug some daily holes in the charts. However, we may very well take out the 2011 highs across the board and test some 2007 highs before that happens.
February 8th, 2012 at 11:42 pm
It’s been said before, exogenous factors are capable of moving the markets, at least temporarily.
If Israel (or Israel and the US) choose to act militarily to stop Iran’s nuclear program, we will see a global market-moving disruption. Most of it will be fear that the sky is falling because the price of oil will rise dramatically for no reason, as the Saudis have already agreed to replace Iran’s oil.
The longer-term potential disruption in this scenario, which could be substantially damaging to global markets, would be the survival of the current Iranian regime and the explosion of terrorism in sympathy or collusion with that government.
This would, unfortunately, put a rather swift end to this short-term (we’re still in a secular bear market) rally.
February 9th, 2012 at 12:05 am
Historical Housing Starts
1991 = 1,009
1992 = 1,201
1993 = 1,292
1994 = 1,446
1995 = 1,361
1996 = 1,469
1997 = 2,475
1998 = 1,621
1999 = 1,647
2000 = 1,573
2001 = 1,601
2002 = 1,710
2003 = 1,854
2004 = 1,950
2005 = 2073
2006 = 1,812
2007 = 1,341
2008 = 903
2009 = 553
2010 = 585
Yup. Definitely improving.
February 9th, 2012 at 12:17 am
Housing starting to recover? Definitely! After all, the $25B in re-fi cash is on its way.
As I expected, Schneidermann sold out to Obama/Geithner after getting his name i the papers and getting his 15 days of fame.
http://finance.yahoo.com/news/Holdout-states-lured-back-rb-3214462578.html
So with the banks’ cash Barak will buy himself votes of 1 million households. But make no mistake: those delinquent so-called homeowners will default!
February 9th, 2012 at 12:20 am
If the Power of Positive Thinking is so damned strong, let me see you move a grain of sand with it.
I tried to conjure up a pink unicorn pony shitting skittles in my driveway, and I was really stoked about the positive effect this creature would have on everything from world peace to my personal income. When I went to look, there was no pony. I did, however, discover that the neighbor had let her dog take a dump on my grass (again).
Positive Thinking must be keeping the good shit off its balance sheet.
A bunch of ostensibly good people thinking positive but irrational thoughts is what lead us to our current very negative, very real situation.
Maybe we can get them dumb asses do it again.
February 9th, 2012 at 12:50 am
I see a run up in the 1st half of 2012, full of political and Fed goosing of the markets, ultimately fading as we move into the 2nd half and collapsing at or shortly after the elections.
February 9th, 2012 at 12:56 am
Given the past four years, and following the bacchanalia of the ten years before, I think most American consumers — not just ‘investors’ — are increasingly hyper-credulous when it comes to any positive spin on any of the data. We are a notoriously impatient people…”Are we theeeeere yeeeeet?” I am sensing this recession fatigue in a lot colleagues — even so-called bears.
Personally, I am doing miles better financially in the last four years than I was before the credit bubble burst, (thanks to abstemiousness and industriousness – not hustling and jiving, thanks), so if anyone should be able to look at that list objectively and readily concur, I figure it should be me; but I don’t. What I see is a remarkably unsubtle attempt at shaving and shimming certain data points in such a way that they look less bad and suggest that the worst is behind us — even though aside from Fed/Treasury action to inflate/reflate assets, no serious measures have been taken to ameliorate any of the systemic rot which will continue to plague the world economy and seriously undermine the middle classes.
February 9th, 2012 at 12:57 am
Just musing a bit … As we move into the coming decade, we’re going to see a lot of demographic bending of norms, so that the normal means will be bent way outa whack, for about a decade. TA and fundamental analysis alike should prolly be viewed with caution, and trusting your gut will be equally suspect.
No answers, only concerns and cautions. Use of Ouija boards is recommended. And the magic 8-ball.
February 9th, 2012 at 1:05 am
Cyclical upturn? Yes! Secular upturn? Almost certainly not! The question as always is how sustainable the upturn is going to be. And what it could morph into. There is no question that this is good news for those closest to capital either theirs or others. For those on the breadline the misery as always continues. They can only puzzle about the supposed 4% genetic difference between themselves apes when apparently the difference between them and the average CEO is many thousands of percent. Human society has got to be the most stratified in the animal kingdom. That much is without question.
February 9th, 2012 at 1:50 am
I concur with the consensus: this counter-trend rally is a pleasant surprise. But tell me this: is today’s data THAT MUCH better than it was three months ago?!
With all the Wall Street bucket-shops humming along, HFT front-running the market, and QE for every man, woman and child in the land, what could possibly go wrong?!
February 9th, 2012 at 3:20 am
I think much of the list is fundamentally wrong. The rest points to a very weak underlying economy, one which can only function on aggressive life support.
If, however, you are simply suggesting that stock markets will rally based on this list, then I could agree. While I am part of the 1%, I frankly don’t see how a stock market rally does anything for the 99%. Oh, trickle down! I forgot about that…and it’s worked so well for the past twenty years.
February 9th, 2012 at 3:49 am
The data has showed recovery since the spring of 2010. This is a fact. It just hasn’t been fast enough for some or others that don’t want a recovery, so they whine. I don’t see a grossly high market, about fairly priced. There will be some downwaves obviously. A 10% correction in the next 4-8 weeks wouldn’t surprise.
February 9th, 2012 at 4:12 am
One More Thing …
As the boomer bubble slides into retirement (willingly or otherwise, financially prepared or not) over the remainder of this decade, expect some serious bending of traditional market rules of thumb and mean values …
rendering most technical analysis as well as fundamental analysis bonkers, at least so far as specific numerical targets, levels, ratios, etc are concerned.
It is time to distrust your gut, throw logic aside, and break out the emergency predictive tools of the Ouija board and the Magic 8-ball … at least until this Disturbance in the Force is behind us — say, around 2020 or thereabouts …
February 9th, 2012 at 4:27 am
Think cyclical rally in a rangebound market (800-1600 on SPX); the next bottom should be 4-5 years after the previous one i.e. 2013-4, when rising interest rates will meet disappointing earnings. But before that there is a decent chance of revisiting the 2007 high.
February 9th, 2012 at 4:54 am
For me, “things” were never bad. I remained employed during the recession. I rent so there is no underwater mortgage to worrry about. But I did learn a few lessons. Never buy a house. Never go into debt. Never trust a banker, broker, or real estate agent. And never lend money to a friend.
February 9th, 2012 at 7:03 am
Definitely getting better, at a cost of over a trillion dollars a year of debt.
We’ll worry about that later.
~~~
BR: excellent observation — much better than the lunatic fringe reality denial
February 9th, 2012 at 7:19 am
In markets & economies there are always counter cyclical moves within a bear market. As long as consumer credit has increased so much, I think we just pressed the RESET button.
February 9th, 2012 at 7:23 am
[...] long list of things that are getting better. (Big Picture also [...]
February 9th, 2012 at 7:29 am
I think the government has successfully dragged a lot of economic activity (and investment market performance) from the future into the present through unprecedented levels of expansionary fiscal and monetary policy. How long can that continue? I don’t know but I suspect for a while longer. Right now I am 50% or so long and making money but I have my finger on the eject button. I suspect we will see inflation pick up at some point and that will force the Fed’s hand on an end to ZIRP and then the economic downturn will return with a vengeance as we will be out of ammo to fight it off.
February 9th, 2012 at 7:40 am
There is a component of the market (in some people’s opinion, a large part) that is driven by behavior and psychology… I still read all the reports of blah economy, Euro disaster, China hard landing—can’t help it, but with sooooo many people “knowing” about the bad news and acting (in our region of our large brokerage firm says the average investment account is 30% cash), being negative and scared is the crowded trade. The angst in the office is palpable as this market jacked all the way up 7 or 8% ytd… Will there be a pullback? That is not the question b/c there always is. Will it be the one you’re looking for? Probably not. People are starting to get calls from the same clients that were petrified last quarter wanting to participate in this market.
I would argue the buying hasn’t even started b/c “Joe Investor” isn’t in this market and doesn’t know they want to be in yet… We can be trite and quote Gretsky “go where the puck is going to be”, or a surfer prepares for the wave well before catching it…yada yada…
Europe doesn’t need fixed for markets to work and go up–it just needs to not blow up… Our economy doesn’t need to be awesome to have a great stock market, in fact it only needs to simmer to keep the market happy. And I don’t get scared of the market until clients are demanding to get in. My phones are quiet on the inbound, and I get significant resistance on my conversations of getting longer equities. In my mind, that makes this a real rally that still has legs.
Risk is to the upside, not down…
February 9th, 2012 at 7:50 am
Even if housing has bottomed, which I doubt, it’s going to drag along the bottom for a decade until there is a real recovery in jobs – which last months report WAS NOT, unless you expect Wal-mart greeters and burger flippers to go out on a home buying spree – plus it will be revised upward and likely come in at 8.5-8.6.
Half of that laundry list is a bunch of declarations with no underlying basis in fact and the other half is a statement of things that haven’t changed in the past fouryears – low rates, central bank maneuvers, what’s that done for us?
This rally is on its last legs. Mid-month look for the selling to start in earnest. You won’t want to be long post Presidents day.
~~~
BR: I wouldn’t fully agree with that — More than half of the list is based on more recent data points. Not only that, but you are making forecasts, not showing evidence. Around these parts, that’s less than worthless.
February 9th, 2012 at 8:06 am
I live in an economically depressed hellhole, and things are getting better. One big thing are renovations. Everyone seems to be repairing their homes or rental property. Houses and businesses are being built. Road traffic is horrendous. You can feel it too. People have a Spring in their step and the vernal buds on the trees are getting ready to burst. I’ve seen this same thing several times in the last few years, and by the time it trickles down to my 7th layer of Hell, we’ve immediately dropped back into the deep freeze. An earthquake hits or some dollars for dogdoo program runs out, or some political thingy happens. But America demands debt: that’s what got us into this, and by gum, it will get us out of it. So the hangover looms in some fuzzy future, but for now we are definitely beginning to hum, and it seems much stronger than the previous attempts to get traction. And has anyone else noticed that ECRI guy has vaporized. Maybe someone should file a missing person’s report.
February 9th, 2012 at 8:16 am
BR asked:
What do you think? Is the data objectively getting better, or is this merely a selective list of positives?
reply:
———-
My first thoughts are COMICAL DESPERATION.
We just suffered a market crash caused by the end of QE2 liquidity multiplied by a European liquidity crisis. Stocks had nowhere to go but down from either, and down a lot from both at the same time. The combined efforts of all major central banks providing cash swaps plus the LTRO from the ECB added enough liquidity to prevent world ending bank runs from ending the world. Operation Twist added a little confusion by keeping panic induced long term rates low for a longer time than they otherwise would have been. Then Europe made some changes politically and the world looked better again and safe for investments.
Two months later Europe looks like a mess again and it may be possible that the months old fixes won’t be enough to prevent the bank run that the central banks prevented. But … stock touts bid up the markets a bigassed amount during the calm.
Now, what’s a stock tout to do??
On one hand you touted you ass off and looked good when equity prices rose. (Thank you, I made money) On the other hand, bad things may be on the horizon if more central bank fixes to Europe don’t happen. (While I applaud the financial innovation known as the Central Bank when it adds liquidity to prevent end of the world issues when shit happens, they look a little sick when they add liquidity to aid rich friends and bail themselves out from their own bad decisions.)
Most money managers are too arrogant to ask the public to “think about it”. But, here they are at the top of a run following a large crash. The prudent thing is to reduce exposure, but the sales would drop equity prices and cause a snowball effect. The investing public, especially those associated with funds that buy and hold, would scream at another roller coaster ride. So, game theory says “do nothing” and maybe beg your customers to please not panic.
February 9th, 2012 at 8:27 am
Haven’t we been here before?
I think the first two paragraphs of the link below from Comstock Partners set the context.
http://www.comstockfunds.com/default.aspx?act=Newsletter.aspx&category=MarketCommentary&newsletterid=1630&menugroup=Home
Show me six months of significant cumulative net employment gains and I will begin to hope.
Housing can’t perform until job growth and income stability will support it.
If the consumer economy is destined to contract in relative terms in the face of de-leveraging, stagnant wage increases, employment churning, then growth must come in infrastructure spending, which will not be sufficiently robust in the current Congressional deadlock, which quite conceivably could extend for another four years.
Corporate cash liquidity does nothing for Joe or Jane Six-pack if it is deployed in capital substitution for labor, or vulture capitalism. And is it more a defensive posture than a springboard for growth? Corporate cash has been more a symptom of the current crisis than a cause of hope.
While the morass in Europe is buying the US business community time to insulate itself against possible incomes, we are unlikely to be fully inoculated. Has the European situation eased, or are its leaders playing Three Card Monte with themselves?
And China? I’m more concerned about China than Europe. We at least have a window into Europe. We see China on a good day through frosted glass, and much of what we can discern is troubling.
Are positive signs dominating? We are trying to will the sweet smell of Spring in February, forgetting that with the blossoms comes tornado season. We’ve got a long way to go.
February 9th, 2012 at 8:51 am
I actually believe that the low end housing market has bottomed. I live in Seattle and purchasing a lower priced home is cheaper than renting. Even for a mid tier home it makes sense to buy instead of rent. You have to live somehwere. Prices may drop a bit more but I doubt we will see any steep declines going forward. As for the market, I continue to believe our market is driven by EMs. We have seen a nice rebound in EM markets and that has trickled over to the US. Whether that continues nobody knows. I do believe that 2007 was the end of a 35 year financial driven economy and we are now in a different world where finance has little affect on the economy. Talking to people I still don’t think we as a country have changed our spending and saving habits which by no means is a good thing.
February 9th, 2012 at 9:03 am
Data are definitely improving and if ECB LTRO has systemic risk off the table for now, buy dips. Not sure how long it lasts, but trend is for sure up for now. If we make new recovery highs on S&P I suspect we could see all-time highs. Also, the public is still very scared and very aware of QE, injustice of bailouts, and talks intelligently about how it will all come to a bad end. Long term I don’t necessarily disagree with them but for now it feels like there is still some wall of worry left to be climbed.
February 9th, 2012 at 9:04 am
Why has the Baltic Dry Index crashed again?
February 9th, 2012 at 9:14 am
Other than that Dry Index, everything is looking good. Not sure why that index beaten down so much.
February 9th, 2012 at 9:17 am
All part of the “Been down so long it looks like up” syndrome and the disconnect between markets and the real economy.
If you compare just about any of these numbers to pre-crash days, they suck pretty bad. But, after throwing trillions at it, it’s more or less stabilized for the moment. (How many more people are there to lay off?). This doesn’t mean that the NYB (New York Boys) can’t push the markets higher before something somewhere else breaks. It’s just another case of the circle jerk mentality and the phenomenally short memory of the average non-professional.
February 9th, 2012 at 9:21 am
Reminds me, when a kid, fooling with cars, keeping an engine running by squirting starting fluid into the carburator every 10 seconds. Now Ben is standing by with the aerosol can and the engine is running on its own – sort of. So, things are better.
Your bullet list is pretty good. However, there are strong drags. There are the baby boomers unprepared for their approaching retirement not relinquishing their jobs and spending less, trying to save VERY conservatively. There is the U6 under/unemployment. Many lost their jobs due to outsourcing, although they may not have realized it until the housing/financial/easy credit industry bubble collapsed along with its related employment. Just watched a History channel story of the crash on 10/29/29. Said the loss was $1T in one day. How much wealth has been lost in the last decade to failed or struggling (small) business owners, equities/retirement accounts, depleted savings and lost housing values? So, we can move ahead but from a lower wealth level therefore less momentum. “Benefits” of short sales/BK, low mortgage rate refis, suddenly cheaper Chinese goods fading out.
February 9th, 2012 at 9:39 am
If we can just get Greece done properly the world economy will pick up nicely. Not fast or particularly strong but smoother, less volatility. The ECB is now doing for Europe what the Fed has been doing for us and I think it can manage PI+S now that Trichet is gone; the BOE is doing QE to prevent Cameron from sinking GB entirely, and China and India will trundle along. America and Japan will keep sliding upwards.
The only concern (if they get Greece figured out) I have is locally: I live in NYC and I think property values are going to start falling hard now that Wall Street is being cut down to size, and NYC and NYS tax revenues are going to be off sharply. We’ve long complained we need a more diverse economy in NYC; now we’ll find out if we’ve done enough over the years to survive without the teat.
February 9th, 2012 at 9:48 am
How big is the Fed balance sheet? As long as the 800 lb. Gorilla can juggle and chew gum at the same time while keeping rates low for perpetuity then sure things look better.
What ever happened to the happy talk about a Fed exit strategy? Not even mentioned any more. The concept of Free Markets are off the table so the fear is subsiding.
February 9th, 2012 at 9:49 am
Things are improving. People want cars. People want vacations. People want houses. And if they think their job is stable…. they are going to buy all of these things… which they have been putting off buying in recent years.
February 9th, 2012 at 9:51 am
oh.. and when there is increased demand manufacturers add jobs to meet the demand.. no matter what the current tax structure is.
February 9th, 2012 at 9:57 am
Barry – per AtlasRocked point – can you please permanently add this to your list of negatives.
“US is borrowing $1T per year BEFORE the baby boomers start retiring en masse.”
February 9th, 2012 at 10:05 am
Your readers need to get out a bit more Barry. You asked of things are getting better not if things couldn’t be better. There is still a lot that can go wrong but I think it is pretty clear that the economy is looking better than it has in recent years. I would even propose that we could have a lot better year than a lot of people expect. I guess then everyone will have to find something else to be pessimistic about.
February 9th, 2012 at 10:11 am
This is long term thinking and not relevant to short term investment decisions, but here’s food for thought.
The ECB just announced a ‘cash for trash’ program. ZH described a new program from the ECB, detail to be released later, that allows the ECB to accept commercial loans from problem banks in return for cash from the ECB.
Here’s the cause and effect scenario from this program; all long term …
ECB takes commercial loans that factors obviously won’t touch. This puts the capital of the ECB at risk and gives cash to the bank selling the loan. Bank cash goes to investments directly or indirectly and the inflation from this ECB ocean of cash soon causes commodity prices to rise. Incomes do not rise in tandem and GDP falls from lowered overall spending since inflation causes everything associates with commodities to rise disproportionally. Recessions linger and growth slows. Commercial loans purchased by ECB become junk in many cases, impairing ECB capital. ECB goes bust, taking down the EU with it. Real growth impossible due to commodity price increases caused by oceans of newly printed cash.
All because it’s now apparently a crime against nature to stop TBTF.
February 9th, 2012 at 10:14 am
What Bob A said.
February 9th, 2012 at 10:54 am
Positive trends, but difficult to draw conclusions, since the glass-half-full “positives” can also be seen as glass-half-empty.
• Housing starting to recover… but 2012 prices consensus negative 3-6%, huge shadow inventory
• Labor market improving… but huge backlog of Americans who need to re-enter the labor force
• Credit expansion unfolding… but Dec. consumption was on credit, pulling demand forward
• Low dollar… good for exporters but bad for consumers (Brent = 118)
• Low rates… but financial repression, and flat yield curve means little incentive to lend
• Pent-up demand… but consumer still highly leveraged
• US mfg renaissance… modest number of jobs to those with skills, but most jobs not coming back
• US energy sector booming… but oil stubbornly high… what happens to crude if we see a real recovery?
• Double-dip fears minimal so far this year… but 2.5% GDP doesn’t get the job done
• Inflation receding around the world… China 4.5% vs. 4% consensus, and what about LTRO2 and QE3?
• Europe financial strains have eased… but big questions kicked down the road with no real resolution
• Liquidity is building, eg, corporate cash… corporations liquid but consumers and sovereigns leveraged
• The Fed has rates on hold at zero and Operation Twist… So no rush to buy a home, no incentive to lend
LTRO, QE, other liquidity measures… Yes! But do we get a sustained virtuous cycle that outweighs the unintended consequences of money printing? I guess we’ll find out.
February 9th, 2012 at 10:57 am
BR – “can you please permanently add this to your list of ” positives
* if the event is so distructive – that it can’t be fathomed – it won’t happen
(that is, if the hand of man has any say in it)
February 9th, 2012 at 11:38 am
The guys dissing bonds are not pump-and-dumpers this time, the Fed has GUARANTEED that you will either get a negligible real return, or a substantial loss.
The 5-year Treasury is yielding 0.8%. Remember, a bond’s yield is a CEILING on its return, if there is no default (or inflationary soft default).
You might argue that a rate drop results in a capital gain, but all that does is take the hold-to-maturity return and BRING IT FORWARD. It doesn’t change the amount you have at the end, except by reducing it for interest on coupons reinvested. And one can’t say rates have a lot of room to fall.
Of course stocks are high risk, but you have a decent yield, on option on economic upside, and a built-in inflation hedge.
Guys like Buffett are not pump-and-dumping stocks, they’re very rational skeptics of bonds.
February 9th, 2012 at 12:06 pm
CSF got a gold star on his counter points. While the US economy has bottomed and marginally trending up, it is time to adjust the S&P value, back to 2008 before Paulson cried Armageddon for TARP or back to 2004 before the phony housing boom earnings?
Meanwhile, insiders are selling fast and furious:
http://www.marketwatch.com/story/the-insiders-are-selling-heavily-2012-02-09
and look at these published jobless rates for the developed economies:
ook at these entities with Draconian public plans:
Germany 6.6 (job sharing program)
USA 8.3
UK 8.4 (negative gdp)
euro zone 10.4
Ireland 14.2
France 9.7 (austerity plan coming)
Italy 8.9 (austerity plan coming)
Greece 20.9
Spain 22.85
Portugal 12.40
http://www.tradingeconomics.com/unemployment-rates-list-by-country
February 9th, 2012 at 12:11 pm
First Disclosure – I’m Long in Markets( I Trade Indian Mkts). Leave the fucking markets and come to real economy.
Now Real Economics
1. You live in an economy where central bank doesn’t care a shit about main economy.
2. You live in an economy where fraudsters and scamsters get bailout.
3. You live in an economy where money printing is considered as a pride.
4. You live in an economy where you could make billions in salary for making your company insolvent and push into bankruptcy.
5. You live in an economy where government will give cash for buying cars, houses, briefs vests and whatever.
6. You live in an economy where interest rates are virtually nil for past 3 years and would be nil for forthcoming 3 years.
7. You live in an economy where nearly every person is a hedge fund manager and loose money on stock markets, but make money on management fees et al.
8. You live in an economy where consumers didn’t understand the meaning when statistical department comes out stating that consumer confidence has raised drastically due to raise in stock markets.
9. You live in an economy in which every decision taken by central bank based only on stock markets than real economy.
10. You live in an economy where small rise in GDP of some paltry 2% due to trillions and trillions of money printing and guarantee asks you to raise question about ” Are Positives Starting to Dominate” ?
BR – Grow up man! Please accept the reality that all these economic non sense are due to trillions and trillions of wastages which means there is no real real growth or independent growth without life support given by USELESS CENTRAL BANK!
February 9th, 2012 at 12:14 pm
Corproate Law “has GUARANTEED that you will” finish BEHIND them .. the world can’t have this many faux currencies under them banners & flags
February 9th, 2012 at 12:33 pm
gps, Another point to remind the bulls of is that the S&P 500 earnings growth are largely from Apple and AIG:
http://www.chron.com/business/article/Corporate-profits-aren-t-what-they-seem-3079696.php
February 9th, 2012 at 1:00 pm
One must accept the relative fragility and lack of robustness of many of the items on the list Mr. Ritholtz made given the following:
The level of de-leveraging by governments and individuals that must take place relative to the amount of growth required to pay these debts without inflation
The inflationary nature of intervention so far should growth start to really pick up – big money seems to be preparing for this.
The very real risk of instability from the Mid East
The many unknowns associated with the extreme levels of derivative contracts and their interconnections.
Something way out of left field: another natural disaster with unforeseen consequences (eg. solar storm transmission grid interactions) or say a cyber attack
February 9th, 2012 at 2:48 pm
Has anyone seen a paper out of The Fed (or other reasonably reliable source) that posits at what point monetary expansion WILL result in excess inflation? Or does the crowd believe it’s all done via “flying-by-the-seat-of their-pants”?! I suspect it’s being done as much by “feel” as data, but hoping the dismal science actually has some SCIENCE to back their monetary experiments.
February 9th, 2012 at 3:26 pm
Everything boils down to middle class net worth, the ratio of income to debt.
The reason housing is so important to consumption over the last few decades?
Homes were little more than ATM machines, promoted as “wealth creation” by those (TBTF banks) who reaped the benefits of loan shark economics and a whole lot of help from Gramm-Leach-Bliley as well as the CFMA.
Until the ongoing refusal to see that wealth disparity truly does counter economic growth (read up on Marriner Eccles), and an admission of the negative effects that foreign trade, tax policies and corporate monopoly have had on the ratio of middle class debt to income ratio’s, the entire list at this blog’s open are likely superficial short term indicators.
The parameters in place, pent up over the last thirty years – the over use of consumer credit to displace wage stagnation, the loss of GDP in foreign trade, the extreme differences in wages between us, China, India…not just menial MFG jobs, but college grad jobs…all of this stands in the way of further growth.
All of it, a direct result of political bribery, the Supreme Court’s “Citizens United” just ensured that things will only go from bad to worse.
February 9th, 2012 at 9:19 pm
The TRENDLines Recession Indicator alerted of potential monthly contractions due in early 2012 on Aug 29th, but retracted that alert in the Sept 25th update when it had become clear to me the negative forward looking summer data was a mere anomaly and not supported by other data sets. In short, after 20 weeks Hussman and ECRI continue to chase the wrong rabbit…
TRI’s present GDP guidance warns Q1 will dip to o.7%, then rise back to 2.9% by September. It will be another tumultuous year. After the Election, 2013 & 2014 are headed for 2.3% & 2.5% respectively … hence the Fed’s speculation of continued accommodative stance to combat high unemployment.
TRI chart: http://trendlines.ca/free/economics/RecessionIndicatorUSA/USA-TRI.htm
February 9th, 2012 at 9:46 pm
I’m POSITIVE the markets are now nearly completely rigged to do nothing more enrich those that run the markets.
Cheers.
February 9th, 2012 at 9:57 pm
The few items on the list that are actually true are not at all positive. For example: Zero % interest rates? Come on. That’s stage 4 economic cancer. You do not recover from that … you linger a while longer and then die.
February 9th, 2012 at 10:36 pm
“Things are improving. People want cars. People want vacations. People want houses. And if they think their job is stable…. they are going to buy all of these things… which they have been putting off buying in recent years.”
Yes, but demand does not mean qualified demand. If people don’t have the money and prospects continue to look tenuous for so many in the middle class labor pool, then citing pent-up demand is pointless.
For all you contrarians — “The worst is behind us” is the now the party line among not only the public, but also the thesis of many corporate annual outlook statements.
February 11th, 2012 at 5:31 pm
For the record this is my take (which of course no one will believe and makes it the more likely): I think interest rates have bottomed, the stock market is making a double top, and inflation is set to surge. I had a measured move in LT interest rates and so far they have bottomed precisely there. The stock market is following the 1966 bear to a T and we should head lower but not make a new low below 666. Finally the commodities ETFs volume profile has the best look which to me in the end volume is truth and the stock market is lying. I could go into more detail but in the end it doesn’t matter as I hope no one agrees ;) and it will be just like 2007 and 2009.