Wednesday, November 30, 2011

Happy Days Are Here Again?

Wall Street is ending the day in euphoria.

The Dow [Jones Industrial Index of 30 top US companies' stocks] closed up 490.05 points, or 4.2%, to 12,045.68. It was the largest point and percentage advance since March 23, 2009, when the index shot up 497 points, or 6.8% -- just as the latest bull market was beginning. [...]

The Dow is back in the black year to date, up 4%. Most U.S. indexes, however, still are down for the year.

"There's just a lot of good news in general," said Don Hays, the founder of Hays Advisory. [...]

Before U.S. markets opened, the Federal Reserve, the European Central Bank and four other central banks unveiled a new program to increase access to dollars for struggling European banks. The move is designed to make it easier for European banks to access funds at a time when fears about the European debt crisis have led to a freeze in liquidity.

In the United States, the payroll company ADP said just before the markets opened that private-sector companies in the U.S. had added 206,000 employees in November. That is almost 100,000 more than they added in October and nearly 100,000 more than analysts had expected. The figures allay fears that the job market has ground to a halt.

Later in the day, data on business activity, pending home sales and general economic growth all came in better than expected.

"There were a range of different indicators on different parts of the U.S. economy, and they all did well," said Paul Ashworth, an economist with Capital Economics.

So what happened? Let's start with the biggest news of the day, which was the announcement that the world's top central banks (including our own Federal Reserve) will be coordinating to rescue the world's economy by making it easy to inject money into Europe's central banks, so they can easily lend money to European banks in dire need. While this may first seem like another "bank bailout" (and it essentially IS), it's also an effort by the big central banks to stop the Euro-zone crisis from plunging the entire globe into a greater recession.

So this big announcement turned out to be a big boost to markets across the globe today. And in addition to that, we also saw some good news here at home. Private sector job creation ticked up to 206,000 new employees this month, and this helped to calm fears of a looming double dip recession here in the US.

So is everything coming up roses again? Not so fast. The Federal Reserve expects slow growth at best in the coming year (2% annual GDP increase is only enough to keep up with population, NOT to recoup 2007-09 decline). And as we discussed earlier today, even that small amount of economic hope is threatened by further "tea party" favored austerity measures slashing federal investment (aka spending) to the point of causing GDP contraction and greater unemployment.

And getting back to today's big Euro-zone news, the whole argument of fairness resurfaces. Why do big European banks get bailed out, but not (formerly) middle class American homeowners, small business owners, or blue collar workers? Why are the top economic powers that be so willing to help the 1%, but not the 99%? I suspect what was announced today is badly needed to help stabilize the global economy, but at the same time far more action is needed... In particular, action that working class families can see and feel directly and immediately.

This is why we still see so much anger in politics today, even anger that seems misplaced and nonsensical at times. It's why this upcoming election may be especially turbulent. And though today's news shows some good signs for the economy, I suspect we'll still face rough waters ahead as long as unemployment remains high... And certain politicians try to keep it that way.

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