El Presidente Rajoy of Spain has successfully negotiated with the EU for a higher deficit to GDP limit for the coming year. Is this good or bad? My sense is that it is good, as it reduces the pressure for more austerity measures in the economy with the highest unemployment in the EU. It appears, the new conservative rulers here will make a serious attempt to both curb the excesses of the “sindicatos” or unions, and pump some money back into the economy to help it out of its doldrums. If the EU as a whole begins to show signs of economic life, Spain will recover more quickly, as it is a playground for the European middleclass. If those folks have more money to spend on vacations that will certainly help. The issue for the market, though, is whether Spain will become the next whipping boy for the news media and financial pundits.
I have told you often that economists are like the oracles of old. They roll their bones and tell all who will listen what the future will bring. Sometimes they are right and sometimes they are wrong. Having said that, I will also say that when the economic environment is less volatile, economists can find their way to more success, meaning, the economic indicators they rely on for their models are more stable, and thus the forecasts are more reliable. This is true for the market as well. My point is that in the last few months, the economic environment has become more stable, thus, what the oracles and their bones have to say is, in my book, more reliable.
Developed economies will pick up steam this year thanks to an array of ultra-loose monetary policies from major central banks and amid new signs of progress in the euro zone’s debt crisis a Reuters polls found. Surveys of over 250 economists, taken in the past few days, saw 2012 growth forecasts for the euro zone, Britain and Japan revised up, but left unchanged for the United States.
What they see now is what the market sees, and what I have said will eventually happen – the Euro-debt crisis will make slow but steady progress toward a resolution, and in that process, at some point, consumer, business, and investor confidence will return. We just might be reaching that point, as recent sentiment and some economic data out of Europe points to, at a minimum, a softer recession than originally predicted (oh those bones again).
My overall point today is that despite the media and the fear-clad investor class, which, by the way, is usually the last group to board the train, the global reality is changing, at least the perception of that reality is changing. In the world of the market, as I have said so many times, perception is often more important than reality. If folks of all classes, consumers, businesses, investors, politicians, and anybody else left, start believing in a new, improved, reality, then that new reality has a decent chance of becoming real.
Okay, so the new fear out there is that China is headed for a hard landing (oh boy once again) in their attempts to reduce inflation through slowing growth. True, the country has a provincial debt problem (real estate bubble?) somewhere in the realm of $1.7 trillion, but keep in mind, the highly controlled economy has an excellent track record of growth and recovery, as well being the largest holder of foreign-exchange reserves in the world by far. In other words, the country has lots o’ cash it can use for whatever it needs. Keep in mind as well, the Chinese economy is dependent on what the rest of the global economy does, and with civil discontent rising over there, well … Think about.
Trade in the day – Invest in your life …
