The Independent Market Observer

10/11/12 – Optimism Day Today

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Oct 11, 2012 12:40:06 PM

and tagged Commentary, Europe

Leave a comment

I have been getting some feedback that, although people like the blog, there is a sense that it is pessimistic. To which I can only say, pessimistic? Me?

I admit to being called Eeyore on more than one occasion, but I would argue that it is the times, not the person. To some extent, I would also plead guilty to the charge, but I’d offer the defense that because of the times, by and large, I have been right. Not that it’s much of a defense, of course.

That said, I believe that I have been appropriately recognizing positive signs—I called a housing market recovery well ahead of the pack and published the webinar on how well positioned the U.S. is going forward, not to mention the fact that I highlighted the Boston Consulting Group study on the U.S. industrial recovery several weeks ago. But, I do have a tendency to look for and highlight potential risks, rather than the good stuff.

So what I am going to try to do—data permitting—is take a day every week or so to focus on some of the positive trends. Today is actually a good day to do that, as there are no breaking negative stories out there and several positive ones.

Let’s start with the U.S. Initial job loss claims dropped today to the lowest level since February 2008. These numbers have been up and down, but this strong performance suggests that the slowdown earlier this year has reversed. A very good sign. Housing continues to perform strongly, and there are actually two stories on that in the papers: in the New York Times (NYT) on page B8 and in the Wall Street Journal on page A6. Housing is a foundational component of any recovery, as it drives construction jobs and consumption of related goods—you need new furniture for the new house, right?—and the wealth effect supports increased spending. Not only that, but as I noted before, it is a key indicator of consumer confidence. The U.S. economy continues to build strength, doing so even in the face of the uncertainty induced by the election, the fiscal cliff, and international woes. I expect the completion of the election, which will resolve a great deal of this uncertainty one way or the other, to be a positive factor as well.

Europe is also showing positive signs. Italy, one of the weaker but better-run troubled nations, actually announced a tax cut, saying that enough progress had been made that some relief was warranted. Because the leader there, Mario Monti, is an unelected technocrat, he gets the benefit of the doubt as to whether this was actually justified or just a political maneuver. He gets even more of the benefit because his principal challenger, Berlusconi, just decided to back him rather than challenge him. Good news all round for Italy. Also, as of yesterday, the French legislature approved the European budget discipline plan, which is real progress, and the head of the European Central Bank was quoted in a story in the NYT (p. B5) citing several real measures of progress. There is no doubt that the right things are being done and that progress is indeed being made.

So that’s it for the day. No buts, no caveats, just the good news. I will be back tomorrow, of course, but for today, let’s acknowledge that we’re moving in the right direction and that things are actually looking pretty good in the context of the past several years.

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®