Capital Commerce

A Bullish Scenario for the Economy and Market

By James Pethokoukis

Posted: May 22, 2008

This I could use right about now. Liz Ann Sonders, the chief investment strategist at Charles Schwab, outlines a bullish scenario for the economy and for stocks:

I think it's time to begin discussing a new paradigm that could emerge—with potentially positive implications for both the U.S. economy and stocks. The story goes something like this:

  • U.S. economy slows dramatically (check)
  • U.S. Fed cuts interest rates dramatically (check)
  • Dollar sinks further (check)
  • Commodity prices go parabolic (check)
  • Speculative hoarding of commodities ensues (check)
  • Regulators and Congress rev up the anti-speculation rhetoric (check)
  • Commodity-hungry emerging economies suffer (check)
  • Global growth suffers, including noticeably in China (check)
  • Investors shift funds from international stocks to commodities (check)
  • Non-U.S. central banks consider rate cuts to fight growth slowdown (pending?)
  • U.S. Fed enters pause mode (could be there already)
  • Rate differentials support dollar rally (fledgling rally so far)
  • Commodity prices begin to correct (fledgling correction so far)
  • Commodities move from U.S. economic head wind to tail wind (pending?)
  • Lower commodities/inflation supports U.S. valuation expansion (pending?)
  • Investors shift from international stocks/commodities to U.S. stocks (pending?)

Obama/Clinton reinspire consumer confidence? When they are talking about renegotiating trade deals, blocking other trade deals, wanting to raise tariffs against China (actually, both sides are talking about doing this), suing OPEC, preventing domestic oil production, wanting to impose restrictive regulations to curtail the perceived threat of global warming, and I won't even address their foreign policy beliefs.

I have more reason to be afraid of an Obama presidency than to be "inspired" to go on a consumption binge. And you are correct, Daniel, that markets usually does what you DON'T expect. Just look at gas and consumers. People are still buying gas in droves, still carrying on with their travel plans, still driving as if there is no tomorrow. So some sections of the economy (financials, housing) are doing miserably, but others (travel, retail) are doing fine. But do not be led to believe that consumers don't respond to incentives (and disincentives). Even liberal economists believe that raising taxes when the economy can be teetering towards a recession is a mistake.

Just on a different note, I am pretty sure James has more access to information about global markets than most of you here. Instead of trying to insult the guy, try arguing why he is wrong.

Chris of AZ @ May 23, 2008 12:50:55 PM

Political factor

Something else that could help cause a stock rally in America:

Obama/Clinton win big and re-inspire consumer confidence.

Some say, no way! Counterintuitive! Democrats cause tax increases. Would scare the market. But remember, the market usually does what you DON'T expect.

Daniel David of NM @ May 23, 2008 12:32:08 PM

Disagree on first pending note itself

You Say - Non-U.S. central banks consider rate cuts to fight growth slowdown (pending?)

I Ask- How can emerging countries cut rates with such high inflation level.

For example, today India's inflation is whopping 7.8% and still going up.

There is no way the banks their will cut rates.

Ditto with rest of the BRIC

Anyway, one day markets will begin to rise, eventually

Anil Passi of CA @ May 23, 2008 09:03:04 AM

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Capital Commerce

Capital Commerce

U.S. News business reporter Matthew Bandyk examines the issues, people, and debates that shape the nexus of political and economic life in the nation's capital.

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