The 2012 New Year began on a financially and economically upbeat note!
Of course, the early days of most New Years tend to be upbeat. Yet a triple-digit market gain on the first trading day combined with a slew of positive economic reports make it easy to understand this week's burst of optimism.
Consider these January 3 news excerpts:
- "U.S. factories expanded in December at the fastest pace in six months..."- Bloomberg
- "The U.S. economy finished the year with a reassuring spurt of growth...The Institute of Supply Management’s manufacturing diffusion index rose to 53.9% in December..."- Marketwatch
- "Poll results from the December Small Business Authority Market Sentiment Survey...reveal that independent business owners are optimistic as they begin the first quarter of 2012."- CNBC
- "Construction spending in the U.S. rose in November for a third time in four months..."- Bloomberg
It's enough to tip someone with an "on the fence" economic outlook onto the bullish side. But is that wise?
A less-widely reported (and read) economic story has this to say:
"Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs...Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year..."
Bloomberg (1/3)
Obviously, digging out from under that burden will be much tougher if borrowing costs are rising.
So the positive economic news only tells part of the story, and it's a lagging story at that. In other words, the economic upticks are the results of the market's rise during the past two years or so. Those reports are not leading indicators.
Here's what the September Elliott Wave Theorist noted (emphasis added):
"The respite following the 2009 stock market low is not a new expansion. It has failed to improve housing sales, barely caused employment to budge, and hasn’t managed—despite the unprecedented manufacture of new Fed money—to get the total supply of credit back above its 2008 high. Debt is such a drag on the global economy that it cannot recover."
Economic reports come and go while our debt remains historically high. At last count, over $15.1 trillion.
We believe that big economic changes must occur to satisfy that debt. It's the rare economic occurrence of deflation.
Read how we believe this debt story is going to unfold.
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