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Everywhere activity and prices are bouncing. These charts reflect gains in industrial metals prices, shipping rates, and crude oil. The fundamentals of economic activity are improving. This has nothing to do with Obama's policies or government bailouts or TARP. Higher prices for commodities reflect not only improving demand but also easy money. Higher inflation is likely at some point, but for now the thing to concentrate on is the improvement in the economy.
7 comments:
You are right. Your three indices are driven by China and have nothing to do with the dismal state of affairs in the USA. China has its own rationale for stockpiling commodities and it doesn't bode well for the rest of us.
China is a factor, to be sure, but I don't think they are the only factor contributing to improving conditions in virtually all commodity markets. The number and variety of things that are bouncing is very impressive and points to a global recovery.
Oil might drive us right back into an early recession.
Some argue this past recession was a symptom of oil and the preceeding carnage was the result, not the driver.
And if oil as a % of income starts north again you can do the math on what that would mean for the weak balance sheets of Americans.
It's hard to see how this economic recovery is going to get legs, since the Congress and the President seem eager to cut those legs off at the moment they appear.
The massive deficit spending is likely to produce inflation, which reduce the real living standards of US citizens even if other economic indicators imporve.
Also, look at the proposals on the table right now. Cap and trade, union card check, socialized medicine, higher taxes on corporations, dividend income and capital gains income.
The economy certainly does have the ability to recover from its current problems. But not if such powerful forces are working so diligently against it.
My guess is that the pessimists on the economy are closer to being correct than the optimists. That's not to say that we will all be selling apples on street corners. It's just that it might be many years before Americans get to enjoy the kind of prosperity that they enjoyed from 1983 through 2007.
I think oil needs to get a lot higher (100+) before it threatens the economy.
How strong the economy gets now that it is recovering is the $64,000 question. I see lots of pessimism, and I have been pessimistic myself, but I hate running with the herd.
Still, there is a lot of recovering to do before we even get back to where we started about a year ago. That leaves me bullish for now.
Scott,
It's one thing to be bullish on stocks in reaction to the huge selloffs of the past 12 to 18 months. Sure, the stock market could continue to rally and we could recover a big chunk of those losses.
But it's not hard to find economists who say that the unemployment rate will be "well into the double digits" by the end of this year.
Regardless of what you think of the way the Bureau of Labor Statistics calculates the unemployment rate, whether you think the household survey is more accurate than the payroll servey, if these economists are right, that unemployment will continue to climb until it reaches a 12 to 15 level, that's a horrible economy for anyone except for those who live off of their investments in the stock market.
On the other hand, it's easy to find an economist who think that we will see recovery by this summer or fall. It's hard to reconcile these differing predictions.
But if I were in Las Vegas right now, I would bet that unemployment is at 12 percent by the end of the year, at that would represent the highest jobless rate since the early 1940s (or before that).
Those who project 12-15% unemployment are unreasonably pessimistic in my view. Given that we have already seen evidence of moderation in the pace of layoffs--indeed, the household survey says we may nearing the end of significant job losses--a conservative estimate of further job losses would be 2 million more over the next 6-12 months. With normal growth in the labor force, that would give us an unemployment rate of about 10%. But I wouldn't be surprised if the rate peaks at just under 10%. Forecasting worse economic conditions requires one to reject all recent signs that the economy is stabilizing; to reject the evidence of rising prices for commodities, the recovery of global trade, etc.
The doomsayers just don't see anything good out there; I think their bias is blinding them to the facts.
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