Wednesday, November 30, 2011
Gott Sei Dank
ADP was very good; I expect Chicago PMI to be pretty decent, and we have at least gained enough economic strength to be able to afford not to extend the FICA tax cut in 2012. I am now very confident that US housing will rebound off the floor and represent some additional strength to the US economy in 2012. The reason I am so confident is that it is already rebounding. There is nothing like predicting a thing that is already happening to generate confidence.
This means we can afford to continue with the state/local government restructuring in 2012. Not only does the Fed not need to intervene, it would be dire if it did. The 2012 economy will see ups and downs, but should continue an iffy expansion due to the simple fact that a lot of US households have quite a bit of money in the bank and conservative spending patterns have left quite a bit of residual demand for those households. If cars and housing are at least okay, the US economy cannot fall into a deep, protracted recession. It can dip, but it cannot crash out.
Between autos and SOME comparative residential strength, the residual demand in the US economy next year should prevent us from falling into the all-out recession. An up-down pattern is really our best possible outcome - maybe not over the next year, but when considered over four years, it generates a net positive GDP change of at least 5%. Thus, only the Fed can destroy us now, if you rule out asteroids, nuclear war and the eruption of the Yellowstone caldera. Since Iran is busily blowing itself up, I am going to tentatively rule out nuclear war. The risk of the Yellowstone caldera and asteroids is pretty small, and thus not worth worrying about.
Internationally, all things proceed to their appointed end. China is in an easing cycle, having loosened for regional rural banks previously, and announcing today that on December 5th it will cut bank reserve ratios. I expect them to continue in this cycle for some time. Europe cannot get the money it needs for the EFSF, and is trying the IMF. Europe can't get anywhere near the money it needs from the IMF, either, but this kicks the can a couple months down the road. The US, Canada, Switzerland, Japan, the UK and the ECB are extending the dollar swap lines and cutting interest rates to clear the way for ECB to print some money.
I'm busy, but I'll write more tonight.
banks. I thought we went over this already ?
Mr. Stock Market is nowhere near as smart as Mr. Bond Market!
"Something big", indeed. It's a huge change in policy. Ben Bernanke is now central banker to the world. It's insane, and it's going to end badly.
It's not going to work - Chinese PMIs are showing contraction. Article.
Spain and France have auctions today. Make some popcorn.
Japanese exports are increasingly reliant on Chinese purchases, so the Chinese PMIs make the Japanese slide look more serious.
I hope you're right about this being no big deal, but Mr. Market sure did react to something or other yesterday!
Whether it will work depends on what you mean by "work", doesn't it? It will prop up the banks, and thus the European political structure, for a while. Everybody else can go hang.
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