November 22nd, 2011 9:22 AM by Mel Samick
For investors, these are clearly volatile times. Many market pundits feel that if governments do the right thing and work through their problems, then confidence will return, and the economy will recover. However, continued delays to resolve problems can lead to worst-case scenarios unfolding. Politics, mainly around Europe and U.S. debt, is one of the major causes of these uncertain times and thus vacillating markets between hopes and despair. Investors may be uncertain about their next move but shoppers are ready to camp for the door-buster "Black Friday" this week. Congress may not reach a deal by Wednesday on the debt ceiling plan but shoppers have already narrowed in on the deals they might target this week.
The Congressional "Super Committee" is not turning out to be so super after all. The deficit-cutting Committee likely will announce tomorrow that it has failed to reach agreement on at least $1.2 trillion in federal budget savings which will then be followed by the political blame game. The stalemate over spending versus taxation may only be resolved after the next election. The political situation is worse in Europe. The debate is whether ECB should actively buy the sovereign debts of troubled nations or wait for political resolution first. European Central Bank President, Mario Draghi, is unwilling to make large-scale bond purchases to extinguish a debt crisis that has spread from Greece to Ireland, Portugal, Italy and Spain, threatening to tear the 17-nation monetary union apart. While the ECB is intervening in debt markets in an attempt to lower soaring yields, it's refusing to unleash the unlimited firepower that some governments are calling for. The issue is turning into a German versus the rest of the Union. The German bond yield is watched closely by Europeans, who consider it to be the gold standard of stability. The fact that the German bond yield was moving in the opposite direction of its neighbors' bond yields indicates a widening spread that is further undermining the credibility of the weaker governments.
Amidst these political black clouds, the silver lining is that the U.S. economy may end 2011 growing at its fastest clip in 18 months as analysts increase their forecasts for the fourth quarter just a few months after a slowdown raised concerns among investors. Economists at JPMorgan Chase & Co. in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent. The incoming data on consumption, business spending and residential investment all point to better GDP growth in the fourth quarter. The index of U.S. leading indicators, designed to foreshadow the economy's performance over the next three to six months, rose 0.9 percent in October, the biggest jump since February, after a 0.1 percent September increase, the New York- based Conference Board said today. Sales of previously owned homes in the U.S. unexpectedly rose in October, a sign falling prices may be attracting buyers. Purchases increased 1.4 percent to a 4.97 million annual rate.
Importers in the U.S. are enjoying the rally in the dollar as we head into holiday season. As the Euro is losing its alternative status to the dollar as a reserve currency, only gold seems to be an alternative in the current environment. While importers can enjoy the strong dollar, shoppers are seen to be keen in opening their wallets and purses during this holiday season, as per analysts' collective foresights. Some signs emerged indicating that consumers were doing just that. On Wednesday, data from comScore Inc. forecast online spending of $32.4 billion during this year's holiday-shopping season, an 11% rise from the same period a year ago. The research firm also said consumers spent $9 billion online in the first 21 days of November, up 13% over the first three weeks in November 2010. Hopefully, higher business activity may give momentum to the stalling economy worldwide.
Information Provided by NYCB Capital Markets