Surprisingly good numbers on the US economy should end fears of a renewed recession
The list of good economic reports in the last week is long and impressive:
- Record retail sales over the Thanksgiving weekend
- The unemployment rate fell to 8.6% and nearly 200,000 new jobs were created
- The most important gauge of manufacturing activity recovered
- Consumer sentiment was up big in November
The fears of weak consumer spending for the holiday season proved to be mistaken. Auto sales also increased in November—a purchase that can be put off easily given the high quality in the auto fleet.
All this means that the biggest risk to stocks has been removed—there will not be a recession in the US in 2012.
Then there’s Wednesday’s announcement by the Fed and all the other major central banks.
The more we look at the details the more we like it. The central bankers are essentially telling us that the banks of the world will have access to low-cost funds for the foreseeable future. This program does not solve the European debt crisis—Mediterranean government bonds are still toxic. However, it does prevent banks from running short of cash in the short-term, while they sort out how to absorb the losses on those bonds. Presumably the group of Central Banks got some kind of assurance that a real plan would be announced on December 9th.
All this could still go badly, but a repeat of the Lehman collapse has been avoided.
It remains an uninspiring year for stockholders as the market and our portfolios hover around the break-even point. But it has been a costly year in terms of mental anguish. We think the next year or so could be better for investors, but there’s no sign of reduced volatility. Our seat belts should remain tightly cinched.
Best regards,
Daniel A. Ogden
