Whenever I see an advertisement for some trading or investing product, the following caveat always appears in one form or another, “Past performance is not indicative of future performance.” I bring this up because the following response to my challenge of last week suggests that since the recent economic trend is up, the trend in the next 6-9 months will be up in a big way.
I think in 6-9 months the economy will be taking off like a rocket. The constant drumbeat of the right-wing propaganda ministry has everyone thinking we are dire in straits, but consider the facts. When Obama entered office, the economy was losing 750,000 jobs a month, the GDP was dropping 6.5%, and the stock market had dropped precipitously.
All these metrics and most other indicators have long since turned positive. The economy has taken a while to gain traction because of the depth (largest drop in output since the ’30’s) and the length (longest since the ’30’s) of the recession. Also, the nature of this recession, i.e. the over-leveraged consumer is a larger drag than usual to a recovery. But Americans love to spend and once they have paid down a significant portion of their debt they will return to their old ways. We’ll see a boom reminiscent of the Clinton ’90’s, the Kennedy-Johnson ’60’s and the Reagan ’80’s.
A month ago, I would have agreed simply on the evidence of past cycles. In fact, I would have agreed based on the improving fundamentals, as the writer suggests. Today, however, I am seeing potential issues that could derail the economic recovery, thus postponing the inevitable further out than 6-9 months.
I do disagree with the notion that it is only right-wing media (although only five corporations control all of our media, and they are, arguably, right leaning) that is beating the drums of doom. It appears to me that all the media are harbingers of doom, as doom sells.
I do agree that the American consumer is coming around, and the early “returns” from the post Thanksgiving shopping spree are showing strength. As well, as I wrote last week, consumers have deleveraged considerably and they are becoming more confident in the recovery.
The issues out there are the mortgage debacle, the QE-2 and debt issues, European fiscal sanity, the new Republican majority in the House, and the ability of one senator to filibuster raising the U.S. debt ceiling, which could derail the global economic recovery if it should happen. Sure, there are more issues geopolitically (Iran, North Korea and terrorism in general), but I have laid out enough to support my notion that the picture for the short-term future is muddy at best.
These are difficult times, and it seems to me that the past is a less reliable a gauge than it has been. Although every historical time frame is different from another, this particular era has influences never seen before in history, at least any history that we know. Be that as it may, every era could make the same claim, so, although my vision is obscured, my basic understanding of cycles tells me that better days are coming. The only question is when.
Trade in the day; invest in your life
