Good news abounds

Happy Friday everyone!

Today’s post is about all of the good news that is permeating the press. Without further adieu…

• The savings rate in the United States hit its highest level in 15 years at 6.9%. This number is hugely important for the long-term health of the economy. What this means is that consumers are saving money and not spending it. That will lead to overall drop in the debt levels in the United States. This is a good thing. The only danger of course is if U.S. consumers stop spending altogether. That would devastate the economy and likely eventually lead to a deflationary spiral. Not a good thing. However, the savings rate was negative for many years, indicating that our fellow citizens spent more than they earned = very baaaaad thing.
• Retailers are expected to cut the number of goods they offer by ~15% over the next year. On the surface this sounds like a bad thing. Fewer options = less choice = bad. However, one of the reasons that our economy is unhealthy is because a lot of our economic growth has been what I call “phantom” economic growth. An increase in the number of toothpaste choices that leads to consumers spending more money on toothpaste is not economic growth. Economic growth is finding ways of doing things more efficiently with the same set of resources. Fewer economic goods for sale represents a simplifying of business logistics, a “getting back to basics.” That will free up capital for business ideas that garner efficiency and not just an expansion in wallet share.
• Home prices in California are rising again. California represents about 20% of the U.S. population and the real estate market is a price leader. A real estate price recovery in California likely means that a recovery is soon to spread throughout the rest of the country.
• General Electric is adding 1,100 jobs in Michigan.
• Numerous businesses are reporting better than expected earnings. Among them are: UBS, Palm, Oracle, BlackBerry, KB Homes, Jefferies Group, etc.
• Several important firms are saying that they see growth likely in the second half of the year. Among them are: Bank of America andAnalog Devices.

Is there bad news out there? Not really. There is news that indicates that the recession is still affecting people, but not really news of a worsening of economic conditions.

So what does all of this mean? It likely means that the economy has indeed reached a trough, is stabilizing and is getting poised for growth. However, I have to tell you I am a little cautious in terms of the financial markets right now. Why? Because all of this good news is not trigerring a rise in the financial markets. That is indicative of several possible outcomes. One, that the mood of the people in the U.S. is gloomy. If that is the case then watch out! People need to feel confident about their lives in order to start spending money again, and ultimately that spending fuels the economy. It could also be that the lack of financial market reaction is simply a reflection of investors waiting to see how the Second Quarter really went. Next Tuesday marks the end of the Second Quarter and about 10 days after that businesses will begin reporting results. Usually first among them is Citigroup. The fact that Citigroup has yet to pre-announce a short fall in its earnings likely means that the Company is in-line with expectations or above. The health of the world’s largest bank will be a good indicator as to the tone and tenor of the Second Quarter earnings season.

Have a good weekend everyone!

Jason