When you're being chased by a bear, you don't have to run faster than the bear; you just have to run faster than the other guy.
Good advice when you're camping in bear country. Good advice, too, when you're thinking about how to allocate your money in today's very chaotic financial markets.
The U.S. economy and stock market don't look especially attractive right now in absolute terms. But they do look a lot better than most of the alternatives. For the next few weeks, couple of months or maybe as long as a quarter or two, the U.S. stock market and the U.S. economy are the best in the world.
You heard that right: In the short run, that deeply-in-hock, struggling-to-grow, politically dysfunctional United States economy is the best in the world -- and you need to make sure you own enough of its stock market to take advantage of that temporary superiority.
How can that be?
Mostly because being the best economy and stock market in the world isn't a very tough test to pass at the moment.
A world of hurt
Look around at the other contenders.The European Union? Puh-leeze.
The euro debt crisis has progressed from leaving investors wondering which country will be the next to send shivers of fear through the financial markets to the question of how many euro-toting countries can be in crisis simultaneously.
Ireland is about to pass an austerity budget, but the government that put it together will be out of office by the time it comes time to inflict the pain. No one is certain that the next government won't repudiate the entire package. (For more, see my post "So what happened to the euro relief rally?")
And the count could go to three very soon. The financial markets have stopped lending to Portugal's banks, and Lisbon is totally dependent on the kindness of the strangers at the European Central Bank. No telling how patient that group will be.
China? In the long run, sure, it's a bet I want to take. In the short run? Food inflation. Runaway bank lending. A real-estate bubble that won't deflate. Out-of-control local spending that has, for example, towns of 100,000 bidding for their own high-speed train lines. The only things keeping this all aloft is a financial system that says nobody is bankrupt until Beijing says they're bankrupt -- and faith on the part of investors that somehow the government that buried the bad debts of the Asian currency crisis of 1997 will pull more bookkeeping magic out of its hat and enable the markets to kick the problem down the road. But this isn't an economy or a stock market that's looking forward to taking even a tiny dose of medicine. The idea of an additional half or three-quarter percentage point increase in benchmark interest rates sends the gamblers on the Shanghai market screaming for the door. (For more see my post "Can Beijing fix its runaway bank lending problem? Does it really want to?")
Brazil, the China of Latin America? Inflation ran at a 5.2% annual rate in the period that ended in mid-November. Banco Central do Brasil will almost certainly raise interest rates in early 2011, and the betting is that the current 10.75% rate will head to 12% or 13% before the end of 2011. Financial markets seem determined to test President-elect Dilma Rousseff even before she takes office on Jan. 1, and they are just waiting to punish the economy if she doesn't start reducing government spending.
India's stock market is high enough to raise fears of a bubble, and the Reserve Bank of India has still been unable to get inflation under control despite a series of interest-rate increases.
Those guys make us look good
Things aren't perfect in the United States by any means, but as I said at the start of this piece, they don't have to be perfect. Just comparatively better.For example, the U.S. economy grew by just 2.5% in the third quarter, according to revised figures released Nov 23. But, hey, that's better than the 2% growth in the earlier set of third-quarter numbers, or the 1.7% growth in the second quarter.
Sure, the Federal Reserve is worried about deflation not too far down the road. (See my post "Core consumer price inflation is still on track for 0%.") But at the moment, the U.S. has a modest but positive 1.2% annual rate of inflation. Certainly not enough to push the Fed into raising benchmark interest rates anytime soon. (Do I hear 2012? 3012?)
The federal budget may be generating horrendous deficits, but the U.S. formal banking system isn't showing any big banks on the verge of a crisis in confidence that would prevent them from raising money in the capital markets. (There are Freddie Mac (FMCC, news, msgs) and Fannie Mae (FNMA, news, msgs), of course.)
The unemployment rate may be stuck near 10%, but hourly wages and consumer spending are actually creeping upward, and retailers predict a decent holiday shopping season after a dismal 2009.
Continued: What about the long-term view?
Kidding aside, logic and reason, based on verifiable facts, don't need any further criteria. I think Jim does his best to provide that, whether one thinks he's correct or not.
