Anchors are key these days. Let’s review.
Japan - Visited in the past two blogs, we stated that the mkt crowd has over-reacted to this crisis, underestimating Japanese powers of resuscitation. Sure enough, the Nikkei recovered about half its Tues losses today. The major unknown right now is the extent of repatriation, what one observer called the “snap back in capital flows,” in Japanese offshore wealth, this being a sort of bank or fund for such a crisis. We can’t judge that factor. In isolation of that factor, the situation in the Mid East, not Japan, provides the key potential retardant to US growth.
Mid East - Nothing has changed. Turmoil will continue, likely accelerate. We are going to a place that means more manageable energy for the West but it will be no fun in getting there. These folk embody the meaning of intolerance but we’re stuck with them. Simply witness the Christian / Muslim conflict in Egypt, the current Sunni / Shiite conflict in Bahrain. Still, a gradual move to consensual gov’t represents reality for this region, and this in spite of Obama’s voting “present.”
US - The US economy can be expected to continue to accelerate into Q4. This will be lead by job creation and expanded domestic spending. Any impact from slower Japanese demand will be small. And of course, crude prices will remain a threat Q2 and Q3. And if the event in Japan means the end of the nuclear renaissance, we must factor this in too.
Fed cheerleaders - Bernanke & Co. said yesterday that inflation effects of increased commodity costs, “will be transitory.” How “transitory”? Witness today’s Feb PPI, the headline number double expectations, the largest jump in two years. Sure, it is true that companies don’t have much pricing power to pass these costs along, just yet. But if the Mid East situation extends in Q4 and higher crude with it, this will either dampen growth, of spark inflation, or more likely - both. So why “transitory”? The truth is, the Fed is without a clue, slippery as ever.
Robert Craven
Japan - Visited in the past two blogs, we stated that the mkt crowd has over-reacted to this crisis, underestimating Japanese powers of resuscitation. Sure enough, the Nikkei recovered about half its Tues losses today. The major unknown right now is the extent of repatriation, what one observer called the “snap back in capital flows,” in Japanese offshore wealth, this being a sort of bank or fund for such a crisis. We can’t judge that factor. In isolation of that factor, the situation in the Mid East, not Japan, provides the key potential retardant to US growth.
Mid East - Nothing has changed. Turmoil will continue, likely accelerate. We are going to a place that means more manageable energy for the West but it will be no fun in getting there. These folk embody the meaning of intolerance but we’re stuck with them. Simply witness the Christian / Muslim conflict in Egypt, the current Sunni / Shiite conflict in Bahrain. Still, a gradual move to consensual gov’t represents reality for this region, and this in spite of Obama’s voting “present.”
US - The US economy can be expected to continue to accelerate into Q4. This will be lead by job creation and expanded domestic spending. Any impact from slower Japanese demand will be small. And of course, crude prices will remain a threat Q2 and Q3. And if the event in Japan means the end of the nuclear renaissance, we must factor this in too.
Fed cheerleaders - Bernanke & Co. said yesterday that inflation effects of increased commodity costs, “will be transitory.” How “transitory”? Witness today’s Feb PPI, the headline number double expectations, the largest jump in two years. Sure, it is true that companies don’t have much pricing power to pass these costs along, just yet. But if the Mid East situation extends in Q4 and higher crude with it, this will either dampen growth, of spark inflation, or more likely - both. So why “transitory”? The truth is, the Fed is without a clue, slippery as ever.
Robert Craven
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