The most important thing about a growing list of things that have bounced from year-end lows (e.g., commodity prices, industrial metals prices, oil prices, retail sales, container shipments, home builders' stock prices (+75%), junk bonds, emerging market debt, Apple stock, and now capital goods orders) is that economic activity is not going down a black hole. We are not caught up in a negative-feedback loop that will eventually turn into a depression. Even if all of these bounces only signify a stabilization of economic activity at a lower level, that is a far better outcome than the market is expecting. Depression and deflation fears still rule the roost. The bullish green shoots are becoming so numerous that we have most likely seen the bottom in economic activity. Going forward the issue will be the degree to which the economy recovers—how fast and how durable will the coming business cycle expansion be?
Friday, April 24, 2009
Capex not collapsing--very bullish
The most important thing about a growing list of things that have bounced from year-end lows (e.g., commodity prices, industrial metals prices, oil prices, retail sales, container shipments, home builders' stock prices (+75%), junk bonds, emerging market debt, Apple stock, and now capital goods orders) is that economic activity is not going down a black hole. We are not caught up in a negative-feedback loop that will eventually turn into a depression. Even if all of these bounces only signify a stabilization of economic activity at a lower level, that is a far better outcome than the market is expecting. Depression and deflation fears still rule the roost. The bullish green shoots are becoming so numerous that we have most likely seen the bottom in economic activity. Going forward the issue will be the degree to which the economy recovers—how fast and how durable will the coming business cycle expansion be?
Thank you for the great data and interpretations Scott. With unemployment going up and commercial loan refinancing coming do, do you see a possible hit to what could be a bear market rally.
ReplyDeleteLots of people are saying this is a bear market rally. But I think it is built on a relatively solid foundation of improving fundamentals, both in the financial markets (e.g., spreads coming down) and in the economy (e.g., lots of signs of rebounding activity).
ReplyDeleteIf the rally continues and confidence gets stronger, that will go a long way to resolving the lingering problems out there (e.g., commercial real estate and more home foreclosures).