It was only a little more than half a dozen years ago that the American public felt that their economy was invincible. They had suffered through the bursting of the dotcom bubble, the 9/11 attacks and yet their economy was bursting at the seams with growth. Although it was obvious that the growth was unbalanced and not sustainable, the average American didn’t care. The good times were here to stay. What a great time to buy a couple of McMansions and all the toys that go with large real estate purchases. The economy seemed to be made of teflon and only fools worried about downturns.
This over exuberance is what caused the ensuing recession to be all the more exaggerated. Instead of just experiencing a typical business cycle downturn, the massive leverage created during the mid 2000s mania caused the 2008 downturn to morph into a full blown credit crisis.
The credit crisis of 2007/8 shook Americans to their core. Credit crises were what happens to other countries – not America. Americans were after all the economic geniuses that bathed in the glory of free market capitalism. To suddenly be the pariah of the global financial system was a disconcerting position for America. It is like the day that the young high school prom queen looks in the mirror and realizes she is no longer the prettiest girl in school but instead a middle aged mother with a mini-van.
The blow to the economic self confidence of the average Americans was made all the worse by the terrible conflict between the two political parties in Washington. This caused the fiscal response to the economic downturn to be muted. Which left the ball in Federal Reserve’s court. As they were the only game in town, the Fed set about desperately trying to restore America to her former glory by using the only tools they had – excessively easy monetary policy.
Although this has indeed caused a massive bull market in financial markets, it has unfortunately been slow in improving the situation for the average American. The trickle down effect of higher financial asset prices has been slow to translate into real economic gains. The Fed’s largesse has helped investment bankers, private equity guys and CEOs, yet precious little economic improvement has “trickled down.”
The fact that since the 2008 credit crisis all the economic benefits seemed to be trapped with the top 0.1% is the main reason that America is still suffering from a lack of confidence. The average Americans’ economic situation still seems very precarious.
I am not a big fan of trickle down economics. And I definitely think there are better ways to restore America’s economic confidence than by blowing more financial asset bubbles. But my job is not to pontificate about what should be, but instead to take advantage of what is.
The reality is that America’s economic prospects are much better than most Americans understand.
This recovery has been slow and painful – no doubt about that. But this lack of confidence is causing Americans to ignore the silver lining in the clouds overhead.
For example let’s have a look at yesterday’s JOLTS Job Openings (which measures the amount of job openings that employers are taking specific actions to fill):
JOLTS Job Openings</a> </div>
May’s release was 4,635 versus an expected 4350! This was a barn burner number! And it is not like this is an aberration – the trend has clearly been higher.
But instead of focusing on the fact that the economy is getting better, Americans seem to be myopic in their views of how bad everything is.
Don’t get me wrong – I get it… It’s not like I think that everything is great. I understand that there are some very big issues that are not being dealt with.
But at the margin, most Americans are missing the fact that their economy is about to take off.
Let me tell you a story about when the MacroTourist was a younger tyke. I think I was 17 years old. I was in love with futures trading and was desperate to open an account. My father, who was the research director for a small Canadian securities firm, agreed to guarantee a futures account so I could start trading. I still remember how excited I was. I had my first trade all planned out and was ready to set upon my journey to become the next Soros. My Dad set up a meeting with my new broker after school.
At the meeting my old man set the tone right away, telling the young broker who was unlucky enough to have drawn the research director’s son’s crappy account, “my son has $4,000 and has dreams about becoming a futures trader. Don’t let him lose any more than the $4k.”
My father was wise enough to realize that most traders lose at first and wanted to make sure he wasn’t getting margin calls as I skidded through the $4k. In his mind, the only question was how long the $4k was going to last – not whether I would lose it or not.
After that curt introduction my old man went back to work and left me with my new broker.
“So, you aren’t opening a future account so you can short Canadian dollars, right?” my new broker asked.
“Of course not….” I lied. How did he know that my first trade idea was to short the Canadian dollar?
“I am opening a couple of accounts a week for new futures traders that want to short the Canadian dollar,” he explained. “Usually we do very little futures business, but the amount of people wanting to short CAD is through the roof.”
After going home and thinking about my meeting with my broker, I finally summoned up the courage in the next couple of days to phone him up and give him an order… to short Canadian dollars.
USDCAD Rate (higher rate means lower Canadian Dollar)</a> </div>
You see at the time things were really bad in Canada. Our economy was stinking up the joint and things seemed very dire. Shorting Canada seemed like a slam dunk.
Of course you can guess how the story went from there…
USDCAD Rate (higher rate means lower Canadian Dollar)</a> </div>
My first trade was a complete an utter failure (like all first trades should be otherwise you might think you actually know something when you don’t).
But the point I want to make is that Canadians were the most pessimistic about their economic outlook at the very worse point.
I think this is where the American psyche is right now.
Very few Americans can imagine things getting considerably better. All the good economic news is dismissed and instead the bad numbers are highlighted.
I think the US economic surprises will continue to be to the upside. This doesn’t mean that I am bullish on financial assets, but I will take the other side of the economic pessimists. Right now it seems like market participants are reluctantly bullish on stocks and bonds, yet bearish on the long term economic prospects. I am willing to take the other side of both of their views.
Hopefully I have learned a thing or two since I was 17 years old and my old man won’t be getting my margin calls again…