If anyone were to say that 2008 started with a bang, they’d probably be referring to the sound of our stock market dropping like an anvil on the 1st.Â Woo hoo.
However, the rationale behind the drop is not what the recessionistas of the world want to hear.Â Fundamentals backing our economy are strong.Â The upcoming general slowdown will force inflation back into check.Â Many ask when the loss of wealth from the housing slump and high gas prices will affect the consumer on an appreciable scale.Â So far, the answer is…no.Â Not ever.Â Never ever.Â We like to spend money.Â We like to trade in our ’05 Mercedes Benz because the ’08 model has a voice-activated MP3 player hook-up (and life wouldn’t be complete without that).Â Holiday spending was pretty blasÃ©, but not terrible.Â A heaping helping of mediocrity.
But mediocrity does not equate to a recession.
We have admittedly been spoiled over the past few years with rapid growth as capitalism spread its glorious wings across the world and investors found plenty of resources to exploit and profit from.Â Globalized capitalism has also provided a strong buffer to any wild swings in our economy.Â Most major economic indicators haven’t changed as dramatically as most would have expected, given the housing downturn and the subsequent credit crisis.Â Unemployment did hop up to 5% which is an uncomfortable level for policy-makers, but that’s no reason to riot in the streets.Â We knew this was coming, and most stocks have already priced the inevitable slowdown in.Â So, beyond crimping consumer spending a tad more, it should not be viewed as a sign of the apocalypse.
Many question whether or not the Fed is staying ahead of the curve and stimulating commerce enough.Â From an inflation-hawk point of view, thus far, I can’t complain about the Fed’s performance.
Oil prices continue to draw attention, though they’ve stabilized around $93 per barrel over the past few days.Â We have had multiple trading days where crude oil went over $100 per barrel (which would translate to a national average of about $3.15-$3.25/gallon of gas).Â This alongside a weak dollar and weak manufacturing data is bad news for inflation worriers. Read More