Michelle Jamrisko at Bloomberg writes:
What [Joshua] Shapiro saw two years ago, and other economists didn’t, is that the healing this time would be slower. He and his firm [NY-based forecasting firm Maria Fiorini Ramirez Inc.] have been among the more pessimistic forecasters of a U.S. recovery, citing data that show slow growth and relatively high joblessness persisting through 2013. Shapiro predicts the U.S. economy will grow next year by about 1.5 percent.
Shapiro sees monetary policy, with the Federal Reserve benchmark interest rate at almost zero, as having a limited near-term impact on growth. And he considers the $1 trillion U.S. fiscal deficit an important drag on future expansion.
The uncertain environment should ensure the private sector remains focused on paying down debt rather than expanding investment. And that will ensure that fiscal deficits continue for the foreseeable future. What we need to take into account is how those deficits are funded. If funded by offshore investment from China and Japan, the US manufacturing sector will continue to suffer from an artificially high exchange rate. More likely is Fed funding of the deficit through QE purchases of Treasuries and MBS. That injects new money into the economy, some of which will end up in the stock market. Rising stocks, out-stripping lagging earnings, would take valuations into over-bought territory. Over-valued stocks increase uncertainty, prompting the private sector to repay more debt…… As Yogi Berra said: “It’s like deja vu all over again”.
Read more at Most Accurate Forecaster Sees Lethargic U.S. Expansion | Bloomberg.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.