Sense on Cents

Every respected economist and market analyst is trying to determine if each piece of economic data is a hint of a “green shoot.” If we see green shoots, can a return to days of wine and roses be all that far behind? To steal a golf analogy, if we see green shoots, can we take out the big stick and go for it? Well, I am both an optimist and a pragmatist. If, in fact, we are seeing green shoots on our economic landscape, in my opinion, the best we may do with them is play an upscale version of mini-golf.  Why is that?

Our supply of water, fertilizer, and manpower to properly develop our course is currently in very short supply. We will get to enjoy some fresh air and the company of quality friends, but for now any real fun will be limited to getting the ball into the clown’s mouth.

Bloomberg offers more on our economic future in an article, ‘Green Shoots’ Like ‘Decoupling,’ Bank of America Analysts Say: 

Sightings of so-called green shoots in the debt markets and economy will turn out to be no more valid than the debunked view that the U.S. slowdown wouldn’t spread, Bank of America Corp. strategists said.

While government moves to ease the flow of credit have eliminated the risk of an immediate surge in borrower defaults, weak economic growth and “unintended consequences” of the actions will create a “protracted credit cycle,” probably with a high level of defaults through 2016, according to a May 15 report by Bank of America credit strategists in New York led by Jeffrey Rosenberg.

“Like last year’s ‘Decoupling’ theme that global market performance could un-tether itself from the problems in the U.S., ‘Green Shoots’ underlying premise, a quick return to normalized credit markets and normalized earnings, rests on a shaky fundamental foundation and an overly optimistic view of global economics,” the analysts wrote.

Declining interest rates on mortgages and business loans led Federal Reserve Chairman Ben Bernanke to tell “60 Minutes” on March 15 that he sees “green shoots” in some financial markets, and that the pace of economic decline “will begin to moderate.”

Other commentators have picked up on the phrase, which refers to the early stages of plant growth, as markets rallied. The Standard & Poor’s 500 Index climbed 31 percent to 882.8 through last week from March 9. The difference between yields on high-yield, high-risk corporate bonds and U.S. Treasuries has narrowed to 11.6 percentage points, from 16.8 percentage point, according to Barclays Capital index data.

‘Debt-Fueled’ Growth

“Decoupling” proved fleeting as the MSCI Emerging Markets index rose 19 percent from the start of 2007 through June 30, 2008, before plunging 54 percent through the end of February. The S&P 500 fell 12 percent in the earlier period, and then 42 percent in the later one.

The world must now engage in a long transition to a new source of growth after 30 years of “debt-fueled” U.S. consumers driving expansion, the Bank of America analysts wrote. (more…)