Rarely have I ever seen such a dramatic glass half empty, glass half filled story.
The pessimists, the bears, the media based in New York and the economists who work for money center banks see an economy tanking, dollar falling apart, housing dead for a decade, and a stock market shuffling in the mud. Virtually, blood in the streets.
The optimists see a slowdown in housing offset by a surge in exports. They see softening interest rates, a useful fiscal stimulus that will easily pass Congress and be signed, a bottoming residential real estate climate very inviting to speculators, and booming economic growth in the U.S. by late 2008. They also see oil softening to $75 a barrel and refiners keeping gas well under $3 per gallon. The only real inflation is caused by the idiotic ethanol boondoggle which has screwed up the old balances in American agriculture.
When I look at the two scenarios, the glass half full view looks much more likely, particularly in the industrial arena. Wall Street has taken a series of body blows because of the latest derivatives fiasco. The sub-prime mortgage market is unwinding, but the refinancing wave will begin very soon as 5 percent money becomes available to solvent borrowers. If you add this to benign commercial rates, tax cuts for individuals, weak dollar, modest inflation, cheaper gas, a national election, and cheaper depreciation and small business write-offs, it spells explosive rebound. Man on the street confidence is soft now, and business has caught the fear bug because of the shrill, no-nothing New York media claque, but this will turn as the election gets closer. People are tired of Bush. An Obama presidency is both enormously bullish for personal confidence and very scary because of the senator’s leftist rhetoric. A Clinton nomination probably means another Republican in the White House, which means gridlock, which is usually bullish.
So at the end of January, 2008, the year looks very promising – if we are not blinded by the sourpusses.
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