FedEx (FDX, news, msgs) last Wednesday tempered the enthusiasm of folks on "green shoot" watch. While stating its belief that the economy had hit bottom, the company also said it had no "visibility" to predict future earnings or any expectations of a real uptick in business.
Much of this economic green shoot talk has centered on slight improvements in still-weak/sloppy business conditions. But a lot of that has been a function of companies restocking inventory after the collapse in business at the end of last year and the start of this one.
That, coupled with money printing and the stock market rally, fed on itself and caused a lot of people to get excited about economic prospects improving drastically by the year-end.
But now that the market rally has stalled, negative macroeconomic and corporate news could easily precipitate a reassessment of this whole green-shoots-growing-into-a-beanstalk idea that a recovery has begun.
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This means the Federal Reserve's predicament will become even clearer. Given the path it has chosen, the Fed will have to print even more money. That's likely to mean upping its quantitative easing at some point, as Treasury yields have ratcheted up and mortgage rates have followed suit.Weighing in on the subject, a knowledgeable source I often refer to as the "Lord of the Dark Matter" told me: "Make no mistake, it is a total disaster, with most banks now offering 30-year fixed (mortgages) in the mid- to high-5% range, and then only for the best FICOs. Then again, it was tremendously naive or, more likely, arrogant in the first place to assume that you could indefinitely run a public sector borrowing requirement of 13% of GDP and keep mortgage rates down at a level that induces a massive, permanent refi boom."
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No quick recovery Global-markets strategist Stuart Schweitzer says the road back to economic growth will be a slow slog.
In any case, due to the ramifications (both present and future) of the Fed's money printing, it has now resorted to the jawbone policy. The Fed thinks that by talking tough enough, it can boost its credibility and get bonds to rally (lowering rates), thus wriggling itself out of the box. But given the damage wrought by its own hands, that will be hard to do.
Thus, somewhere in the not-too-distant future, the Fed is liable to find itself back in the position of needing to create more stimulus. (To the extent that stocks are weak, you can be sure that the Fed's tough talk will evaporate.)
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