Could the economy be improving?
Michigan Consumer Sentiment today came in at a six month high. It rose to 67.6 vs. last month’s 64.1. Our trade deficit narrowed as well and many see Christmas retail sales up. There is optimism that Europe will come out with a solution to its Euro problem.
Don’t believe it say some economists. “Of course, a simple scratch beneath the surface reveals what many realists suspect,” says Tyler Durden at Zero Hedge blog, “expectations for the future are the major driver of the headline number. Unfortunately we have seen exactly this pattern before. Not only are the levels and changes similar to Q3/Q4 2008 but the underlying events (recessionary concerns, banking liquidity concerns, crisis of confidence) are eerily similar. The we’ve-been-down-so-long-it-has-to-get-better crowd psychology is intriguing as the rise in hope over the past four months is the largest in over 30 months as the delta between current reality and the green green grass of next year drops. While animal spirits are arguably of interest in short term macro cycles, we note that the ramps in the hopium index ten to last 4-5 months at most and that is where we are now.”
He’s not alone in his pessimism. On Fox Business News this morning Dan Shaffer was dire. The author of “Profiting in Economic Storms” joined Stuart Varney to discuss Europe’s part in this. Here’s the exchange:
Varney asked if Europe is kicking the can down the road in their Euro solutions summit.
Shaffer concurred and said, “It’s a natural cycle. They’re trying to fight a natural deflationary cycle. It’s in its early stages. They’re going to try to pump more money into the banks to try to save these bonds. Where is this other money coming from? They’re just chasing something that is an inevitable cycle. It’s like 1932. That’s where we are.”
Varney: “How do you invest then?”
Shaffer: “This is what I wrote in my book a year ago. Short the Euro, short the stock market or get out of the stock market and buy U.S. treasuries and stay in cash and safe investments. That’s this part of the cycle. This is not the time to be chasing real estate or yields.”
V: “We’re still in this part of the cycle?”
DS: “We’re in the early stages. This is going to last to 2013, could extend to 2016. Get out of commodities. This bubble is – again – we’re in the early stages of a deflationary depression. That means that people are going to start selling all asset classes so that they can raise cash because they’re not going to have enough money to fund themselves as incomes come down and asset classes fall apart.”
SV: “Deflationary depression?”
DS: “We had an inflationary depression in the 70s and now we’re into a deflationary depression.”
SV: “Europe’s headed for depression?”
DS: “The economies expand and economies contract. What we have now is almost every economy in the world is contracting and China is in the beginning of a contraction. The global economy is tied together. The Euro is just a part. On November 30, the last day of the month, the Federal Reserve in our country and 4 other Federal Reserves of other countries announced that they are pumping US dollars in the banking system in the next period of time. Why? What happened on November 30th? Debt is defaulting all over the world in U.S. dollars. I’m long in the dollar.”
Analyst Charles Payne noted that “cycles don’t have to happen. But if these countries continue to say we’re going to spend no matter what, vilify the rich, increase taxes instead of lowering them…”
DS: “No matter what they do they don’t have enough tax revenue to support the debt these countries are holding. So they are going to cut back on measures of spending money. Cutting back on spending money lowers GDP and it lowers economic growth. No matter what they do, they don’t have enough money to solve the problem.”