A Perversely Optimistic Future
With unemployment at a stubbornly high rate, home foreclosures still proliferating and commercial loans (especially for real estate) teetering, is there reason for optimism? Sometimes adversity is reason for optimism, and sometimes in a perverse way.
For starters, the economic news is not all bad. Consumer confidence is firming. Manufacturing is firming. Inventories are low and will have to be restocked. We just came off a decent quarter for earnings in the S&P. The retail sector has added jobs for three months in a row. The market, generally considered a precursor of the economy, has risen robustly. The Dow was up 4.1 percent and the S&P was up 4.9 percent for the first quarter of 2010. The equity markets were up for the fourth straight quarter.
With interest rates low for an extended period of time, money has sought a more comfortable home.
Money goes where it is treated best, and so it has found its way back into the equity markets and the
credit markets. Credit spreads have tightened, and indeed the credit markets have become more liquid.
Just a year ago banks were reluctant to lend to each other. Companies were struggling to roll over
commercial paper even with very short maturities. Companies were beginning to wonder how they would
have enough cash to meet payrolls and payables. Now, credit markets are absorbing bond sales, especially
massive U.S. government bond sales. The high-yield market is absorbing corporate debt at a record pace
and the great lump of corporate debt that needed to be refinanced is being sold. The high-yield markets
are working on repaying debt not due until 2013 and 2014, with 2010 and 2011 and much of 2012 […]