The Independent Market Observer | Outlook. Opinion. Insight.

One Step Back, Two Steps Forward?

Written by Brad McMillan, CFA®, CFP® | Aug 1, 2012 3:42:48 PM

Similar to yesterday, today is quiet with lots of clouds but also some beams of sunshine. I’ll start with the clouds.

Unemployment is a tough story both domestically—“U. S. Faces Battle to Retrain the Jobless” on page A1 of the Wall Street Journal (WSJ)—and internationally—“Joblessness Hits New Highs in Euro Bloc” on page A9 of the WSJ, “Pressure on ECB as unemployment in eurozone hits high” on page 4 of the Financial Times (FT), and “Joblessness in Euro Zone Reaches Record High” on page B8 of the New York Times (NYT). The headlines are pretty self-explanatory, and this is clearly a meta-story with legs in both Europe and the U.S. Note that, although the headlines emphasize solving the problem in the U.S., they merely note that the problem continues to worsen in Europe.

Problems with the U.S. housing rescue program show up in all three papers: the WSJ has“Regulator Resists Mortgage Reductions” on page A4, the FT has “Regulator Blocks Mortgage Relief Plan” on page 1, and the NYT has “U.S. Agency Bars a Plan to Reduce Home Debt” on page B1. This is another meta-story, with the Federal Housing Finance Agency not allowing the major housing finance agencies, Fannie and Freddie, to offer debt forgiveness to borrowers. This is a short-term negative, but I suspect this plan will be back at some point if the housing market recovery falters.

Problems continue in Europe with “Deficit Grows in Spain as Capital Flight Accelerates” on page A9 of the WSJ and “Spain’s largest regions defy Madrid on spending curbs” on page 4 of the FT. I find it interesting that, as I suggested in previous posts, the regional problem is becoming more apparent.

These stories are not new and the articles contain very little that is new to the stories. What I find more interesting, as I mentioned yesterday, are the rays of sunshine that are starting to appear.

The U.S. government is starting to get a grip regarding a Congressional agreement to continue to fund the government past the election, avoiding a pre-election fight, per “Lawmakers Agree to Extend Funding” on page A2 of the WSJ and “Leaders Reach Tentative Deal on Spending to Avoid Fight Before Election Day” on A11 of the NYT. If Congress really can reduce the uncertainty associated with the fiscal cliff and the debt ceiling, this will have a positive, material impact on the U.S. economy. Here’s hoping.

The U. S. economy shows positive signs in “Worried Consumers Save Don’t Spend” on page A4 of the WSJ, which I am including as a positive sign because we need consumer saving in spite of its short-term cost, and in “Economic Data Pierce U. S. Gloom” from page 4 of the FT.

A final ray of sunshine, in my judgment, is “Pondering the Euro Puzzle” from page B1 of the NYT. I am including this as a positive because, as I said yesterday, it indicates that we now have the bandwidth to start looking for ways to solve the big problem instead of just trying to avoid an immediate disaster.

Have a great day!