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Wall Street analyst James Saft of Reuters says don’t buy any relief rally should the debt ceiling actually be raised.
If history is any guide, we will soon see a deal to lift the debt ceiling, followed by yet another cockamamie relief rally.
Don’t buy it; even if we get past the debt ceiling, and even if the U.S. can avoid a ratings downgrade, the situation facing U.S. assets is still grave. Firstly, cutting the deficit is a process, one with multiple opportunities over time for disruptive market events, but moreover one whose ultimate outcome, at best, is going to hurt corporate profits and suppress economic growth.
And even putting aside the impact of falling government spending, recent data shows a cooling manufacturing economy, consumers who are not consuming and a dangerously weak housing market.
While it’s possible that Aug. 2 arrives with no agreement to raise the debt ceiling and begin cutting the deficit, that outcome is a form of ritual suicide that both Democrats and Republicans will probably collectively choose to avoid.
That’s good — a default would be horrific — but a deal won’t change the terribly weak fundamentals now facing the U.S., and U.S. corporations in specific.
He is also pointing to a cooling economy, which was not hot to begin with.
Consumers are hunkering down, whether by putting off purchases of food and diapers in the days before pay and government assistance checks arrive or by putting off discretionary big ticket buys. Corning cut its outlook for the glass market on Wednesday, sending its shares and those of its rivals into a tailspin.
“What you are seeing is the major TV brands like Sony, Samsung, LG are all reducing their forecasts of what will be sold at retail,” Corning finance chief Jim Flaws told Reuters.
Consumers, Flaws said, are putting their money into items other than TV sets or “perhaps just not spending … at all.”
As for housing, there are more than six million homes either in mortgage delinquency or outright foreclosure. Those homes are going to take an enormous amount of time to clear the market, dragging down valuations and comparisons all the while, making mortgages tougher to get. In some parts of the country there really is very little real estate activity outside of the distressed sector. Don’t look for construction to pick up the slack, then.
Washington and their payed pundits may want you to think it’s getting better but it ain’t. Wall Street insiders however, know the truth. They see this kabuki dance ending either bad or very bad. Which may explain why the markets are not reacting like expected.
5 Comments
Another guy ignoring the lessons taught by John Maynard Keynes: the economy can reach an equilibrium at less than full employment.
So, China and India become the new sought after markets? Where does that leave America and the West?
Typical capitalist economist. He doesn’t state that consumer spending is down, ie demand is down, because consumers don’t have the money to spend. Why? Because we don’t have good-paying jobs? Why? Basic capitalism. Drive down wages to increase profits.
Only now wages have been driven down so much even as the cost of basic necessities has risen that the American economy is in a death spiral. It could have been stopped, but our kleptocratic rulers have chosen not to do so. In the end, they only doom themselves, but they’re too stupid and short-sighted to see it. And they weren’t lucky enough to get an FDR who would force needed reforms down their throats.
India and China won’t save them, either.
“our kleptocratic rulers have chosen not to do so. In the end, they only doom themselves, but they’re too stupid and short-sighted to see it. And they weren’t lucky enough to get an FDR who would force needed reforms down their throats.”
“India and China won’t save them, either.”
Ok, I am with you on this one; fuck them, let the die screaming! The question is how do we save ourselves?
You save yourself by not consuming just for consumption’s sake and when you do consume being aware of who you are supporting by doing so. Believe it or not there are still American companies out there. (New Balance, Carol Rose, Corelle, Libbey, Hanes for some products)Buy American. You save yourself by not buying into the wall street ponzi scheme. There is absolutely no reason to “invest” in a company that is outsourcing their labor to India or China-none. If they aren’t willing to invest in this country- screw em’.
Consumers get to drive demand-so tell em’ the eff off with how you consume.