The US Economy: Sunny Days Ahead

"You are my sunshine, my only sunshine; you make me happy when skies are gray"

Alan Greenspan went on CNBC late yesterday to flog the paperback version of his ancient book "The Age of Turbulence". The book is so old that nothing in it is still relevant, but Greenspan needs the money.

During his TV appearance he made the comment that the chances of a US recession were 50% or greater. Not bad given that most experts think the economy is already moving into negative territory.

At the same time, the Duke University/CFO Magazine survey of about 1,300 CFOs found that their good feelings about the economy are growing. According to Reuters, "Those saying they are less optimistic fell to 41.5 percent, from more than half in the previous survey and more than 72 percent in March."

Somehow Greenspan and the financial chiefs of many companies believe that it will soon be easier for consumers and businesses to get loans. The credit crisis will suddenly disappear. The costs of basic commodities which are driving down gross margins at many enterprises will also quickly abate. Housing prices will bottom. The world will get suddenly improve.

It is the job of corporate leaders to make their shareholders believe that their companies are under control and they they can "manage" through hard times. This past April several bank and brokerage executives said the the credit markets would get better soon. Another wave of earnings from financial firms will show that they were wrong about both the second and third quarters.  Economists like Greenspan like to take the middle figures in the bell-shaped curve. It is safest that way. Fringe lunatics like NYU professor Nouriel Roubini can’t be trusted. Their visions of the world are too dark and ominous.

In the face of bad news, it may be human nature to grasp the modicum of data that shows the world is not going to hell.

But, hell is coming and wishful thinking is losing its power.

Douglas A. McIntyre