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El-Erian Warns Of America's CONfidence Economy

By Ironman   Mar 20, 11:26am   ↑ like   ↓ dislike   1 link   135 views   5 comments   watch (0)   share   quote  

Financial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in “hard” data, such as GDP growth, business investment, consumption, and wages.

But economists and policymakers are not so sure. (To some outside the US, it is an assumption that sometimes looks a lot like blind faith.)
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Of course, sentiment can go in both directions. Just as a “pro-business” stance like Trump’s can boost confidence, perhaps even excessively, the perception that a leader is “anti-business” can cause confidence to fall. Because sentiment can influence actual behavior, these shifts can have far-reaching impacts.

So far, the exuberant reaction of markets to Trump’s victory – all US stock indices have reached multiple record highs – has not been reflected in “hard data.” Moreover, economic forecasters have made only modest upward revisions to their growth projections.

If improved confidence in the US economy does not translate into stronger hard data, unmet expectations for economic growth and corporate earnings could cause financial-market sentiment to slump, fueling market volatility and driving down asset prices. In such a scenario, the US engine could sputter, causing the entire global economy to suffer, especially if these economic challenges prompt the Trump administration to implement protectionist measures.

Indeed, by animating the economy’s animal spirits, the Trump administration has laid the groundwork for the private sector to do a lot of the heavy lifting. But there is more to do. Unless the Trump administration can work well with a cooperative Congress to translate market-motivating intentions into well-calibrated actions soon, the lagging hard data risks dragging down confidence, creating headwinds that extend well beyond financial volatility.

https://www.project-syndicate.org/commentary/trump-market-optimism-economic-growth-by-mohamed-a--el-erian-2017-03

Comments 1-5 of 5     Last »

1   Entitlemented   106/106 = 100% civil   Mar 20, 11:33am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Most of the US cycles last 7-9 years, no? Dont know what are animal spirits - discipline, value, meaningfulness should drive our firms.

FACEBOOK/SNAPNCHAT worth more than its true value???

2   Entitlemented   106/106 = 100% civil   Mar 20, 11:42am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

The ZIRP bubble is the substitute bubble for the huge payment that is due to the US for its irradication of Manufacturing.

The US does not manufacture much anymore, but when we do we manufacture ASSET BUBBLEs.

3   Ironman   642/677 = 94% civil   Mar 20, 11:56am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Entitlemented says

Dont know what are animal spirits

How about "irrational exuberance" not based on facts or data?

4   Ironman   642/677 = 94% civil   Mar 20, 12:00pm  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Entitlemented says

The ZIRP bubble is the substitute bubble for the huge payment that is due to the US for its irradication of Manufacturing.

That and over $4 Trillion of printed money.

The last time the DOW climbed 3000 points was from the Spring 2013 to the Fall of 2014, over the period of 1-3/4 years. That climb came from printing over $1.4 TRILLION (QE) and ZIPR.

When QE was stopped in the Fall of 2014, the DOW moved sideways for 2 years, gaining approx 600 over 2 years.

Now, the DOW climbed again 3000 points since Nov 2016 (4 months) based on.... well nothing.... except emotions...

See a problem???

5   Entitlemented   106/106 = 100% civil   Mar 20, 3:59pm  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Ironman says

Now, the DOW climbed again 3000 points since Nov 2016 (4 months) based on.... well nothing.... except emotions...

See a problem???

So people who have some knowledge of economics know that ZIRP had this easy money effect. However, MSNBC, and CNN will drown the facts and although the ZIRP high felt good and made Obama look smart, how many others like myself thought "Lets let the economy take the transient, let some banks go out of business". Because while the FDIC would have dipped into the US coffers, I think by now economist (save the liberal ones) might think that allowing a few of the Subprimers to lose their bad bet would have been better in the long run.

How many of Clinton/Obama "friends" where merely handslapped for their culpability in subprime not getting recognized earlier?

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