Not to be overly bah-humbug-like, but from the public information out there today, it’s hard to see why stocks are being bid up today.
Bloomberg reported that its Consumer Comfort Index just extended a record stay below -50, worse than in the 2008-9 “Great Recession”, which as regular readers know I do not think ever really ended and which might be in or soon headed into a new cyclical downturn (common in recovery from credit collapses). Reuters/U. of Michigan reported that respondents in their consumer confidence surgye had a big jump in optimism for the future, but current conditions were unchanged. I don’t “get” that. Unless respondents are anticipating large enough salary increases to keep ahead of the expected 3% rise in their costs after taxes, why the optimism? Holiday cheer?
Meanwhile, Lakshman Achuthan of ECRI was on Bloomberg TV yesterday and in defending ECRI’s recession call pointed out, inter alia, that the third quarter’s Gross Domestic Income report showed minimal growth, and that real GDI has been decelerating for six straight quarters now. He also pointed out that in recent years, while GDI and GDP data must match by definition, the preliminary data never shows a match and must be reconciled. He pointed to the higher Q3 GDP data as being more likely than not to be revised downward again for this reason. This trend of decelerating GDI growth is exactly what self-reported “discretionary” spending has been indicating at Gallup.com and mentally applies a sensible inflation adjustment to the “nominal” spending numbers that are reported.
I expect that the politicians in Washington would likely not be again planning to raid the Social Security Trust Fund if their economic experts were confident of economic strength in the year ahead.
Meanwhile, du Pont (DD) reported today the dread ‘D’ word in lowering current quarter sales and earnings expectations this morning. No, not depression. Deceleration. Q4 saw decelerating activity from Q3. Texas Instruments and Toyota lowered expectations, as well.
As far as Europe, was the end result of the new agreement bullish? Inflationary? I haven’t a clue.
What I do know is that very recently, global banks have seen ratings downgrades. In my view, in this credit-dependent Western world, credit trumps equities.
Now, often there’s much that is important and unseen that really moves market prices. So we shall see what we shall see.
But to me, the simple thesis is the following: The economically more vibrant countries that had room for further credit expansion coming out of their recessions in 2009 have completed a full economic cycle from expansion into 2008, to (generally brief) recession, to rate-cutting again recently. This rate-cutting often signifies an oncoming recession and otherwise has signified a true soft patch if not recession. The U.S. and U.K., in contrast, were already “all in” on their mega-credit cycles and very unfortunately underwent massive credit collapses in Reinhart-Rogoff ”This Time Is Different” fashion. Thus they were unable to recharge the credit cycle in usual fashion after recession technically ended, and so they undertook quantitative easing instead. The result has been what all surveys of the population show: no real economic expansion after the price illusion is stripped away, which people see through in their daily life over and over.
Why things should suddenly go well in the credit collapse countries in the months and quarters ahead is unclear to me. Longer-term, the world has not ended, and only time will tell if a “crack-up boom” followed by hyperinflation comes our way, as Keith Weiner has described on The Daily Capitalist.
In the meantime, maybe the markets these days have no real “message” and are just squeezing the shorts and what-not.
Happy weekend to all.