The second quarter that we are now in will be the last quarter of the recession of 2008-9. Day after day now for the last few weeks isolated pieces of data from Purchasing Managers Indices, to House Prices, to Retail Prices have indicated that the rate of decline in the economies of Europe and the US has been decreasing. That has been in addiiton to a steady improvment in credit condiitons as all of the various measures taken by Capitalist States to pump liquidity into the world Capitalist system have begun to have an effect.
This morning, European Consumer sentiment data came in way ahead of expectations. IN the US the Company reporting season has seen companies in the large majority reporting profits considerably ahead of expectations. Although, Banks retain a large amount of "toxic" assets on their books, its clear as I said a while ago that in terms of current operations Banks' business has never been more profitable as they get their money almost for nothing. This morning Deutsche Bank in Germany reported profits for the first quarter of more than 1.2 billion Euros.
Having run up, in March, the biggest increase since 1933, the S&P 500 in the US, along with all the other indices is set to run up around another 7% for April, again the first time there has been such a two motnh back to back increase in some time. This evening the Fed has come out with its statement on interest rates and Monetary Easing, and the DOW 30 is up more than 230 points or around 3% on the day alone! That despite, the Swine Flu coming on top of the world's worst financial crisis in living memory! ON the back of the Fed announcmeent the Yield on the 30 Year T-Bill rose to over 4% for the first time since November.
If ever evidence was needed that the fundamentals of the world economy are extremely solid, based on the continuing Long Wave upswing the last few months should have provided it. This will be the last quarter of the current recession making it one of the steepest on record, but one of the shortest lasting just 4 quarters sicne its beginning in the Third Quarter of last year. The clear-out and restructuring of Capital that has and is taking place as a consequecne of that crisis will provide ab even better basis for the resumption of strong growth into next year and beyond.
Workers will once again be able to advance their cause free of the worry of unemployment, and be able to begin to rebuild their organisations to take the battle to Capital. One of the first tasks will be to prepare for the inevitable inflation that will result from all of the deluge of liquidity pumped into the world economy, and the start of the coming up against constraints in China, and the other economies which for the last 20 years have been the source of vast amounts of cheap commodities. But, workers are always stronger fighting on those grounds than when they are simply fighting to save their jobs.
2 comments:
Well, that's a really big call Arthur.
It's not for us non economists to argue with those who read such econometric runes, but I do note that others with a not dissimilar political background to yourself remain hugely concerned about the severity of the recession. John Ross, for example, points to a very significant and on-going drop in US private investment here http://tinyurl.com/dhwmg3.
& some say that S&P is not really recovering at all- certainly this chart from April 24 suggests it is merely fluctuating within a much lower range than before the recession http://www.chartoftheday.com/20090424.htm?T
Charlie,
Unfortunately, I don't have time at the moment to do justice to the call in terms of writing a detailed analysis, because I'm working on a number of other things that have to get done.
All, I'll say is that the drop in US private investment is not too surprising given the way Credit got choked off, and the way the economy suffered a coronary in the Fourth Quarter of last year. That plus the sudden drop in consumer spending - especially in an era of Just in Time stock controls, seems to me a good reason why firms would hold any planned investment.
Secondly, as I've said previously the US economy, although it has de-industrialised to an extent, still has a lot of Capital tied up in old inefficient industries such as the Auto industry - I will be writing a blog on this today - and reflects the frictions in carrying through the necessary re-allocation of Capital,, which I think this recession is now prompting. Given the size of the US Auto industry, and the ancillary industries, the effective dismantling of that industry without yet hte reallocation of Capital to newer more dynamic and profitable industries is bound to result in that kind of statistic.
But, bear in mind that alongside the drop in private invetsment is now at least 1 trillion dollars over the next year in Government invetsment, including proposals for a high speed rail link, and high speed broadband services across America, as well as investment in new and alternative energy systems, and so on.
I see that leading to huge amounts of potential private invetsment over the next year or so.
Finally, China is now the world's econd largest economy, and ITS stimulus is already feeding into the economy. Last night Caterpillar in the US came out and said that it is now supplying equipment to China at record levels, and also last night came out figures that car sales in China hit a new record high last month - they already exceeded US car sales a few months back.
There is still a tendency to see things in US/Eurocentric terms, and a failure to recognise just to what degree the centre of the world's future fdevelopment has already past into the hands of Asia. The Left will make a grave error if it doesn't wake up to that fact.
On the S&P. I don't pay attention to Charts of Stock Markets, because I think its the equivalent of Tarot Card reading. My belief in the Long Wave as far as the economy is concerned is different, because it is based on a detailed explanation of the objective causes of the cycle, but Stock Market movements, although they have some element of that are largely a function of psychology.
But, for that reason they do tell you what the psychology of market participants is. That is why they tend to be a good guide as to what the eocnomy will be doing 6 months ahead, because they tend to reflect all of the information about how well companies will be doing several months down the road.
ON that basis I think that whatever the comparison of the S&P now compared to where it was 6 or 12 months ago is irrelevant. What is important is what the biggest monthly rise since 1933, what a rise of around 7% for last month on top of that tells you about the sentiment, and inside information that millions of investors and individual Capitalists have in terms of where they think their company and the ocmpanies they are investing in is going to be in a few months time!
I wrote a while ago about the cocnept of markets "climbing a wall of worry". It always happens when markets and economies are recovering. That is they still rise even when bad news is given out. When markets rise by 3% in a day as they did in the US yesterday and Asia today, despite the announcemnt of a Flue Pandemic, only a few months after the worst financial crisis in history I think that tells you something about the underlying strength! Yet, trillions of dollars still sits on the sidelines. I see the potential with the massive restructuring of Capital that is taking place, for a huge expansion of whole new industries once the economy begins to show clearly that the crisis is over, that will pull in those trillions in new share issues for those new industries.
The US with its huge technological capability could be at the centre of that. Then I think you will see Private Fixed Investment go through the roof.
Post a Comment