Time To Elevate Our Gaze

For the past eight years anyone with a relationship with the economy and the financial markets of the United States, in other words all of us, have felt themselves cast in the role of swimmers striving to increase the distance between the state of their economic lives and the shipwreck of the Global Financial Crisis of 2007-2009 when the global financial system had listed badly, taken on serious amounts of salt water and resembling much too close for comfort a system sinking towards the bottom of the sea. Those born during the market’s lows of March 2009 will be entering second grade this autumn but for many it all feels very much like yesterday.

Time increases the distance but we still cast glances over our temporal shoulders and having been captured by the traumas of the past it becomes our point of reference for how we perceive both present and future. Members of the “chattering classes” shout inflammatory words through megaphones like so many Old Testament prophets forecasting doom to those committing the financial folly of seeking a return much above that of zero. Confusing information for wisdom we go to sleep at night not counting sheep but rather the specter of lower oil prices, deflation, China, zero and negative interest rates, Brexit. We don’t know what any of it means and often it’s our not knowing that acts as fuel that feeds our fears.

Fortunately, every journey through time eventually leads to a future that is distinctly different from that of the years preceding it and so we’re left without the need to wrestle with the probability of the eventuality but only the matter of its timing. No doubt, with our gaze firmly affixed to our rear view mirrors, we’ll miss significant amounts of accumulating evidence of a notable change in the landscape; that it isn’t gravel beneath our tires any longer and those sure don’t look like pine trees.

For those who might begrudge the cheery demeanor of the thoughts which follow the writer will confess to having “cherry picked” the items to substantiate his case for optimism but hopefully the possibility of a notable change in the economic weather for the better might be found by the reader to be an enticing as well as a compelling one. First though the intrusion of some contrary evidence that while much may be getting better all is still not well. US Treasury rates making new lows are mystifying.

And it would be a good thing if the Italian banking system did not so closely resemble a deflating “ciabatta”. Copper. What about it? The most economically sensitive of all metals prices continues to be seemingly content to be merely an observer at the festival of economic good fortune. Still, it is better to be early to a correct conclusion than to be late even when accompanied by substantiating evidence of greater weight.

The stock market stalled out about two years ago and since then investors have been treated like observers of a dance; two steps to the left, two to the right but somehow while always moving nothing much ever changing. Economic growth had slowed. The forces of economic recovery that began in 2009 clearly had abated. Corporate earnings growth diminished and then disappeared. At least in this instance the market has made a lot of sense though precious few dollars. But then, earlier this year, things began to change, most notably the prices of those things whose existence in this world substantially precedes that of bipeds like us seeking to create wealth without the unfortunate necessity of actually having to expend physical effort in the obtaining of it. Metals, coal, natural gas, oil, gold and silver. Stuff being sold on television by performers lacking meaningful work since the twentieth century.

Numbers in the teens and twenties began to pop up on spreadsheets denoting returns for A MONTH.

The tone of the economic news began to change. With greater frequency some of the data was coming in revealing an economy displaying the rosy complexion of increasingly robust good health. April’s increase in personal consumption expenditures, excluding a month in 2009 supported by the “cash for clunkers” program, was the strongest in any month since 2005. In June the twelve month average of housing starts reached the highest level since 2008. On June 28th the 1st quarter GDP number was revised upwards from 0.5 to 1.1%. Also in June the Chicago PMI (Purchasing Managers Index) reached a six month rate of increase that had been exceeded only eight other times in the past fifty years and seven of those times were when the economy WAS COMING OUT OF RECESSION. On July 1st claims for unemployment compensation came in below 300,000 for the sixty-ninth consecutive month, the longest stretch in more than forty years. On July 6th the ISM (Institute of Supply Management) NonManufacturing Index rose to its highest level since February 2008. On July 8th a broadly based unemployment number including discouraged workers and part timers seeking full time employment dropped to its lowest level since April 2008. Finally, the ISM Purchasing Managers Index for Manufacturing came in with a figure that may be forecasting an acceleration of Real (inflation adjusted) GDP growth to 3.2% which, if realized, would represent the highest rate of economic growth post 20082009.

So there it is. It’s still early days but quite possibly the financial markets and the economic data are offering us the answer to the “when” question posed earlier. NOW.


Mark H. Tekamp