We’re not sure exactly why we were hit with the revelation this week, but it is what it is - the US economic engine is to remain without a rival.
It is clear now that Europe will never coalesce into an economic threat. Some draw a parallel between the E-Z and our colonies, seeing this week’s Brussel’s summit as the equivalent to our Constitutional Convention. Hardly. It is true that under the Articles of Confederation states threw up barriers to inter-state trade; it is true there was no central funding authority. The Constitutional Convention of 1787 addressed these issues.
But the colonies shared an abhorrence of centralized planning and power. The colonies shared also the belief that merit was sufficient qualification for success. These things set us apart from the E-Z. America has no particular national ethnic or racial profile; this ends the argument.
It is also quite obvious to us now that China will not become an economic substitute for America. She can ape but not create. The idea of a Chinese-invented Google for example, as a our neighbor Vic Hansen remarked, is a “a paradox.” (Similarly, “a Russian Facebook is a joke, a Japanese-inspired Walmart impossible.”)
China is an international commercial bandit; she lacks transparency and the rule of law; she has vast inequalities and no stable political system to transition the bulk of her population into an affluent citizenry. Central planning dooms her to failure. Bureaucrats cannot effectively allocate resources; they can only buy time.
We will be traveling so have wrapped our usual Week Ahead into this sketch.
The US economy will continue to surprise most economists to the side of vigor. The desk can count on this reality and would be best advised to set trades with this in mind if they have not already done so.
We were able to isolate this dynamic ahead of most others because of the 1) knowledge of flawed models and because of the 2) understanding of crowd behavior among analysts. Once we have a better idea than consensus regarding the economic landscape ahead, we have captured price change. Of course the world’s great rush to sanctuary has muted that a tad, for example our curve illustration - bloody nuisance those E-Z types!
The key US release next week is Nov Retail Sales. We look for the print to broach consensus.
We have the FOMC on the 13th. Despite some wiser heads in the bunch, the bias is to further accommodate; not now but later. Such a move will spark commodity prices (again) and expand the curve. There is also talk the Fed will attempt to move to further transparency. They had better leave well enough alone. They can only get in trouble. We appreciate the gesture however as we had a hand in bringing about some semblance of transparency under the Greenspan Fed when Greenspan fought it every inch of the way, when FOMC decisions were leaked to one of two WSJ reporters, when FOMC deliberations were recorded but Greenspan told Congress that they were not. That was an extreme. But if the Fed tries too hard, goes overboard, they will simply confuse the markets. Few at the Fed have ever understood the connection between policy intent and market reaction.
Robert Craven
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