The money markets are still a mess and the situation in Europe posing the threat of future contagion for US markets.. Suppose Europe goes all to hell, we should expect at least three shocks to the US

  1. A fall in US exports which will shut down growth in US manufacturing and cut one of the bright spots in the early 2011 economy.
  2. A collapse in profits at US multinationals corporations, which will send down stock prices and impact consumer spending as households feel poorer.
  3. Possible instability in the US banking sector due to their exposure to European debt.

Its hard for me to speak a lot to the third possibility because unlike the structured debt/subprime market I was not really following US banking exposure very carefully. It could be big, it could be small. I really have no idea.

On the other hand the fundamentals for the US economy continue to look towards growth

  1. Jobless claims are falling fairly steadily again, suggesting that the rough patch was indeed a patch.
  2. Chain store sales went very well. We’ll get the full retail report tomorrow I believe and I am expecting a nice report.
  3. US auto sales are markedly improved.
  4. Gas prices are likely on their way down.
  5. Apartment vacancies are getting tighter every month suggesting that my fabled construction boom may not be far away
  6. State and local government budget deficits are beginning to ease significantly.

Again I feel awkward saying it but despite clear flashing red signs in the money markets and I am tilted towards growth.

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