"The Economy - Things are Improving"

Sydney M. Williams

Thought of the Day

“The Economy – Things are Improving”

April 6, 2010

Like all of you, I read a lot. Besides newspapers, there are multiple reports sent regularly by those concerned about my lack of knowledge, or attempts to convert (or pervert) my opinions. There are blogs, magazines and e-mails. As one friend put it, it is like placing your mouth over the end of a garden hose and having someone turn the taps wide open. How much information can we take in, let alone digest?

That is why it was such a revelation (and a pleasure) to read Dennis Gartman’s concise take on recent economic data: “Things are getting better, and that’s that.”

We tend to parse every number. We look for nuances in every statement. But there are times when clarity stares us in the face, yet we weave and we bob, looking for the exception. Answers are often simple, not complicated, similar if you will to the fable of the emperor’s new clothes. Complexity sells, but is often wrong.

The economy is improving. It is, therefore, not surprising that yields on Treasuries have been rising and Corporates will, at some point, follow. Tax rates, we know, will be rising. Will increases in rates and taxes stall economic growth? Probably, at some point. But rates always rise as economies improve. And at this point, markets seem unconcerned. The advance in stock prices, year to date, has not been one of “irrational exuberance.” They have risen despite forebodings by analysts and pundits. Bob Farrell writes, in his recent note, that cash flow into U.S. equity mutual funds finally turned positive by $4.1 billion for the first 29 days of March.

In like vein, in his most recent issue of Reminiscences, Laszlo Birinyi points to a number of recent headlines: “Worries Rebound on Bull’s Birthday” (WSJ); “Stocks Soar, But Many Analysts Ask Why” NYT); “Is Another Market Pullback Near?” (Barron’s); “It’s Time to Question Whether this Rally Can Go On” (FT).

Nevertheless, as certainly as the sun will set this evening, the market will have a significant pull back. Only its timing is unknown. In the meantime, for the Bears, waiting for the correction has been like waiting for Godot.

Despite the “unknowability” of such a correction, I read every day (and have been for a year) strategists and technicians who convincingly, with charts and statistics, write of an imminent decline. Everybody has to make a living, so I begrudge none of these pundits the omens they see in their brew; besides, they provide the market a level of equanimity.

In the meantime, in terms of the economy, things are improving. The recovery may not prove to be as robust as those in the past. Unemployment may linger at relatively high levels. Consumers may save more and devour less. But the economy is getting better.