Vigor Ahead

Our anchor set in mid Oct will continue to hold. US spending and employment activity will exceed Wall St estimates. Forecasters will continue to revise their estimates higher. For business planners or investors it is better to anticipate this event than react.

N. Behravesh, chief economist of IHS Inc recently noted, “There’s no question the consumer is playing an increasingly larger role. We’re seeing an improvement in the overall economic outlook.”

Morgan Stanley’s David Greenlaw, “Consumers will be a significant contributor to the growth outlook. More jobs mean we will see incomes grow by about 2.5 percent. You’ll get gains very similar to that on the spending side.”

As the new consensus continues to build it will carry with it the characteristic of self fulfillment. This is simply the way these things work.

PIMCO, which manages the world’s largest bond fund today raised its forecast for 2011GDP from 2 - 2.5% to 3 - 3.5%. Bill Gross, the founder, was a UCLA classmate. We addressed this bunch on strategy, years back. They should have called this time. The firm attributes sound fiscal and monetary policy for their change of heart. Fiscal yes but monetary, no way.

We don’t have a liquidity problem for goodness sake. We have a balance sheet problem. There is nothing more the Fed can do but make noise.

From Gerald O’Driscoll, “The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.”

And then we’re really off to the races.

Robert Craven.