More From the Bears

Another thoughtful and provocative ecomonic analysis site. These ideas run in tandem with what I posted just below. As I say, I am by nature an optimist, but these underlying economic dynamics are hard to ignore (emphasis added):

My views – elaborated in several ways since last October- are still, even after the recent market turmoil, well out-of-consensus. There is still out there the wishful-thinking view that the current turmoil is a temporary blip and, thus, a buying opportunity rather than the beginning of a bear market. Consensus still argues that the US will grow at 3% in Q2 and for the rest of the year; and that global economic growth will remain sustained. I beg to disagree on all fronts. Let me elaborate my bearish views (that have not changed much since last October; so no Monday morning quarterbacking here).

I have been saying for a while that in 2006 Three Ugly Bears will scare the growth Goldilocks in the US and abroad. The Three Bears are: first, higher inflation –both core and headline – leading to higher interest rates in the US and the rest of the world; the era of cheap money feeding asset bubbles is over. Second, an oil and commodity price shock that is stagflationary for both the US and all other oil importing countries. Third, the fizzling out – to avoid saying bursting – of the housing bubble in the US and in many other economies where this bubble fermented for too long via the drug of easy liquidity. The US consumer is altogether shopped out, over-indebted, with negative savings and now bombarded with high oil prices, fluttering housing and rising short and long rates. The poor consumer also suffers from a slumping labor market generating a pathetically low number of jobs, flat real wages and suffering of the redistribution of income from labor to capital (as the profit share of the economy has surged); on top of it all, the equity market downturn has negative wealth and consumer confidence effects. Thus, real consumption growth in Q2 will be a meager 2% and, since consumption is 70% of consumption [sic - I think he means GDP], Q2 growth will be at best 2.5% and falling towards 2% - if not lower – by Q4.

Hat tip to my friend, attorney Hale Stewart.