Last night on Kudlow, I was excorciated by Forbes editor Dennis Kneale for being too Bearish on the U.S. economy — 1,400 Dow points ago.
I defended myself ably. At the same time as I was pointing out the ongoing weakness in the US economy back in March — observations that have since been borne out by the data — I also noted our investment posture. We have been long a number of sectors for quite some time, and on these prior shows I have mentioned we like, and continue to like, Energy, Materials, Agricultural, Farm equipment, and especially like the multi-nationals Large Caps that derive much of their revenue and profits from overseas.
I find these shouting matches distasteful — they are the intellectual equivalent of Saturday morning cartoons — but that’s the nature of the TV beast. What was particularly perturbing about Dennis’ chest pounding was that he was essentially wrong in declaring economic victory. The Macro facts have clearly borne out my arguments that the economy is decelerating, the consumer is slowing, NFP is worsening, and retail is starting to hurt (Food inflation aside). Further, not only has Corporate CapEx spending not appeared as promised by the likes of Dennis and others, but today we see the Fed ratcheting GDP forecasts down a notch for 2007/08.
Because the Dow has run 1400 since that show does not mean that the economic argument is wrong. Indeed, all it does is confirm our thesis that the prime market drivers are not a hot US expansion, but rather overseas growth, relatively low historical interest rates, lots of leverage and plenty of liquidity.
It is inevitable that when a scribbler who does not manage money for a living begins to pound his chest about calls he made — economic calls that have so far proven to be incorrect — we are seeing a warning sign. When the crowing has been emboldened by a 1,400 point market run, all it means is that we were overdue for some sort of correction.
Thus, we rename today’s whackage — suitably minor in its scope — the Dennis Kneale correction.