A Quick One

Just a quick note due to the negative reaction in the capital markets.

Today's economic data was not much different than consensus expectations. Case Shiller was a bit better (thanks to government stimulus) and consumer confidence was worse than expected (due to a persistently-poor job market). Growth in China may be slowing (I have previously mentioned that China is dealing with its own asset bubble. However, today's data should not have resulted in such a selloff in equities and long-term interest sinking back to lows not seen since crisis days (or just thereafter.

The problem is that equity market participants believed their own propaganda that tremendous government stimulus and easing would prime the pump ad consumers will begin spending and fuel job creation and the economy would boom once again. What seems to have been forgotten is that such measures implemented by the government had worked before because it enabled consumers to lever up further and spend anew. Consumers cannot get credit as they had before. Many have more debt than they can deal with already. Business have little reason to expand payrolls. Forthcoming tax policy changes are not conducive to consumer spending.

No folks, the recovery will not be as sharp was to what we have become accustomed, but that is because the contexts of the recent asset bubble and current global economic situation is far different than in the past. Growth is likely to continue on its modest march upward, but if consumer confidence continues to fall and the job situation does not improve (it could worsen if financially-stressed municipalities and states have to layoff workers) and double-dip recession cannot be ruled out.

If I have time tomorrow I will discuss the mess that is Freddie and Fannie (they own thousands of foreclosed homes).