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BEING STREET SMART by Sy Harding Politicians Will Not Sandbag a Very Promising Recovery! The news could hardly be better for the economy and stock
market - except for the 800-pound gorilla stalking around the room threatening
to wreck the whole scene. I refer of course to the debacle that the fiscal cliff talks
in Washington have suddenly become, just as there seemed to be give and take
going on that would wind up with an agreement before year-end. That outcome is certainly up in the air after House Speaker
Boehner’s leave-taking from the bi-partisan talks to undertake a failed
side-track attempt to pass a Plan B. Perhaps I am too trusting, but I still can’t imagine
politicians are so self-serving that they would deliberately sabotage the
economy just as it is finally showing real recovery from the 2008 financial
meltdown. Positives continue to pile up impressively, supporting the
prospects for the economic recovery, and for a typical favorable season stock
market rally that will continue into next spring - if we can get past the
stupidity of the fiscal cliff talks in Washington. Among the impressive positives: The once a decade changeover of leadership in China that was
causing uncertainty has taken place and seems to be creating no problems. Recent
economic reports out of China have also been encouraging, lessening worries that
China’s economy is slowing into a hard landing. The euro-zone debt crisis has not been resolved, and
European politicians seem to have lost their sense of urgency again once markets
halted their plunges. But the crisis has pretty much moved out of the news and
so out of sight for a while. Meanwhile, the U.S. economic recovery not only appears to be
back on track but the stumble it took in the summer seems not to have been as
severe as previously reported. This week it was reported that the economy (GDP) grew at a
3.1% annualized rate in the 3rd quarter rather than the last revision
of 2.7, and the originally reported 2.1%. It was reported that home prices rose
again in October and are now 5.0% higher than a year ago. Existing home sales
rose 5.9% in November, selling at the highest rate since November, 2009 (when
there was a tax-credit incentive in place for first-time home-buyers). The
closely watched Philadelphia Fed Business Index surged up from minus 10.7 in
November all the way up to plus 8.1 in December, with big increases in both new
orders and shipments. On Friday it was reported that Durable Goods Orders jumped
an impressive 0.7% in November, and
the previously reported orders for October were revised to growth of 1.1% from
the previously reported 0.4%. Consumer spending was up a big 0.6% in November to
the highest level in three years, and consumer incomes were up an impressive
0.8%. Of equal importance, the Chicago Fed’s National Activity
Index, which is a compilation of 80 economic indicators, and which has a history
of accuracy in identifying recessions, jumped from minus 0.64 in October to plus
0.10 in November. That removed a worry, since its level in October had it very
close to readings that the Federal Reserve identifies as indicating a recession
is underway. These reports all indicate that the economy probably also
increased its rate of growth in the 4th quarter. And it has the
tailwind of another round of stimulus from the Federal Reserve just announced
last week. But then there are the politicians who don’t seem all that
worried about sending the economy over a fiscal cliff. However, because of the bad press created by the Plan B
debacle I believe talks will now resume between leaders with even more urgency
while Congress is in its Christmas recess, and that a bill will be presented and
passed by the Senate that will be acceptable to the House, if not by year-end so
soon after as to have the same effect. There’s no doubt that enough uncertainty has returned to
push the good economic news aside for the moment and become the Grinch that
stole Christmas for investors. But it should be only a temporary setback of confidence and
not the end of the promising favorable season rally.
Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends. These reports reflect our opinions and are based on our best judgment, but no warranty is given or implied as to their accuracy. Past performance does not guarantee future performance. Back to the Top Home Subscribe to RSS Feed
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