A SOUFFLE?

A growing chorus of observers sense a two-tiered recovery, one which they maintain is fragile and will eventually collapse on itself. Let’s take a look.

These observers admit that yes, the Dow is up, banking is cooking, corporations in general are more efficient than ever and cash rich to boot and that yes, manufacturing is actually booming. But these same folk claim that only 10% of the population - the moneyed class - have prospered. They maintain that’s not enough, thus this recovery is not sustainable. What is needed? Correct - government investment.

Reflect a moment folks: For two years Obama took water from one end of the pool and put it in the other, expecting something to happen. That was gov’t “investment.”

Then Nov/2 came along. We could predict ahead of that event that the consumer would be cheered. This was the result. Consumer activity, Q4 and so far Q1 has flattened estimates. We never claimed that the economy would catch fire, only that the St consensus was dead wrong about the consumer.

What did these economists miss? Half of them are fresh out of some Ivy League place where apparently all they learn about is ivy; not knowing any better they listened to consumer surveys, almost always a mistake. Next, even the seasoned forecasters did not account for economic traction obtained from Nov/2; they did not understand that 1) damage would be stopped pronto and 2) steps quickly taken for repair. Finally, they misjudged the average spender. Huge housing imbalances did not prove the hindrance to spending that they reckoned on. After all, most Americans have a job.

It’s very easy in this business to cherry-pick results to fit one’s forecast. We must remain sober in that respect. And in our sobriety we can say that the recovery ahead will not be V shaped for some and L shaped for most others. All will begin to prosper.

This recovery will not suffer the fate of the one and only souffle we ever made.



Robert Craven