On Monday the Federal Reserve announced the Industrial Production Index (IPI) figures for the month of February. The IPI fell to the level of 99.7298. This is 1.93% above the December 2001 level of 97.8399. Falling below the Dec. 2001 level would bring economic activity to the dark ages for all intents and purposes.
Warning: the following charts may cause severe and/or permanent eye damage. Avert your eyes if you start to feel the signs of fatigue, drowsiness, or nausea.
For all I know this is do or die for the U.S. economy. Because the IPI is a lagging indicator as part of Dow's Theory, we can only guess that as the Dow Industrials and Dow Transports have bottomed on March 9th we might be in the midst of a temporary bottom. How do I know? I don't know. However, the economic data that is coming out recently isn't worse than what would be expected as the "experts" have baked in much of what is known to be on the horizon.
My opinion is that we aren't out of the woods but we are well on our way to a natural reaction to the oversold conditions in the market and the economy. However, be prepared for new and unforeseen realities that the market has to offer. As an example, what would happen if a medium sized holder of treasuries decides to sell all of their holdings? The shock to the financial system would be profound and unexpected since everyone is waiting on pins and needles for China or Japan to pull the trigger.
Usually it is the unexpected and smaller players that can disrupt an entire system, like what occurred in Thailand in 1997 or Austria in 1931. As the prevailing logic goes, China and Japan have too much at stake to actually sell their U.S. treasuries, therefore it is fitting that they wouldn't engage in the activity as readily as, say, ______________________(fill in the blank).
As with every snowball, all it takes is a small player to get things started. The rest becomes a matter of flooding the exits. The last thing we need in this economy is rising interest rates due to the forced selling of treasuries. This would be the final blow to the perception that the economic "crisis" can be contained. However, it is this scenario that has the highest probability of occurring as a sort of "black swan" event.