While I am not holding my breath, there have been press reports that some Democrats and Republicans might compromise on tax increases and entitlement spending cuts. (one that raises the Social Security retirement ages, raises the tax burden on the very rich, deals with the mortgage overhang, cuts the defense budget and eliminates the fiscal drag of 2012) is not likely, the super committee is now being forced to address the dual objective of assisting in generating economic growth while dealing with our fiscal imbalances. The Political Theatre in Washington, D.C.: While a grand bargain in the U.S.After all, the alternative is unimaginable for the eurozone economy's longer-term health. I am growing more confident that, in the fullness of time, more permanent solutions will follow the current strategy (and the bailout's first step) of monetization and leverage. While stress points remain, crucial details are yet to be worked out and the likelihood of a European recession is high, systemic risk has been removed, and Thursday's decision to lower interest rates by the ECB further supports intermediate-term stability in the region. The Eurozone: Tangible progress in drafting a credible plan for the European debt crisis has started, and though this is not a permanent solution, a flawed plan is better than no plan at all.But that imperfection and vulnerability are now universally recognized (contrasted with the optimism that existed a year, six months and three months ago) and are arguably reflected and more than discounted in reasonable/current valuations. economy exhibiting only moderate growth, there is little margin of safety for exogenous shocks. The world's economic recovery is imperfect, and with the U.S. Yet the Dow rose from 66 to 11,497."īefore I discuss the slow improvement in the three other factors, I want to emphasize that I am keenly aware of the worldwide risks associated with the impact of the current balance sheet retrenchment and the challenges associated with numerous secular headwinds. And, even as I reflect about the tortuous volatility, do not the fear of uncertainty and the wild daily price moves represent precisely the time when one should be invested? In the twentieth century, the United States endured two World Wars and other traumatic and expensive military conflicts, the Depression, a dozen or so recessions and financial panics, oil shocks, a flu epidemic, and the resignation of a disgraced President. While volatility remains heightened, the other three conditions are slowly turning more positive. I wanted to see a stability/improvement in the hard domestic economic data (which would negate the possibility of an economic downturn or double-dip).forceful policy in the eurozone was necessary to stem the debt crisis and.the sharp division in Washington, D.C., must turn toward compromise. the market's volatility would need to subside.Over the past few months, I have written on Real Money Pro that there were four conditions necessary for us to become more optimistic regarding the outlook for stocks: Slowly, most economists (and even the Fed) have finally accepted my long-term view that forward economic growth will be subpar and that the trajectory will be uneven. And, while there was a great deal of volatility thus far in 2011, the S&P 500 has made little progress and stands today basically unchanged from year-end 2010.
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