Oil production keeps rising. The trade deficit is falling as a result. Manufacturers have lower input costs than their rivals in China or Europe. The budget deficit is going down.
But, because of political stupidity and a refusal to properly regulate, we're probably already in a recession. It may be the stupidest recession ever.
Remember. We're already halfway to a recession. The economy contracted slightly in the fourth quarter, mainly because the U.S. military was preparing itself for a sequester that never came. Even those who push pencils at the Pentagon can be heroes, and when they're told to expect less money, they act accordingly.
Second, we have higher payroll taxes. This didn't have to happen, but it did happen, and the result is lower take-home pay for just about everyone. Wal-Mart (WMT) is already freaking out, because their systems tell them quickly when things are happening out there in the world. Some liberals I know actually cheered Wal-Mart's problems, but my guess is more liberal companies like Costco (COST) are going to confirm the signal.
Higher taxes and less government spending may be great ideas in the long run, but when growth is weak, this austerity means no growth at all. It means negative growth. So what we're experiencing, right now, is most likely negative growth.
To that you have to add higher gas prices. Refining capacity hasn't risen to meet the increased supply of oil. Thus capacity is tight. A switch to summer fuels here, a little maintenance there, and the refiners have managed to give us a nice little gas price squeeze just as people were starting to feel better about themselves. Great if you're long the refiners, but it sucks for everyone else.
None of these events are a real crisis. They're manufactured, for the most part. But when you cut deficits precipitously, the fear is that a vicious cycle starts - lower spending by government means less spending by consumers and more unemployment, which means higher deficits and the austerity cycle continues. This is what Europe has been doing for the last two years, and it's the height of foolishness for our economy to follow.
Without growth, you can't pay back business debt. Everyone who has spent time in a corporate treasurer's office knows that - not without eating your seed corn. This is doubly true for national balance sheets. Austerity does not work. It makes things worse.
But austerity, in the near term, is what we have. And that's going to stampede traders once they realize it.
The same is true for gas prices. High gas prices actually encourage growth in other areas. They encourage growth in efficiency, they stimulate density in housing, they keep renewable energy growing. Over time, all these things are going to deliver a permanent solution to high gas prices.
But in the short term, the market can still be manipulated. In the near term, consumers can still be screwed. And that means less money to spend on other things.
So while the next leg is down, there's a buying opportunity ahead. Politicians in both parties are going to find solutions to their part of the problem, at least short-term solutions. The current level of gasoline supply tells me that, with even a little cooperation from motorists, the current price hikes will prove unsustainable by summer.
But by that time the "oh noes" will have triumphed on Wall Street, and stock prices will be affordable for those who have cash ready to invest when the all clear is given.