US Feeling the Pinch

Unexpectedly, the United States’ fourth quarter GDP rate was slightly negative at -0.1 percent. It is true the figure is slightly deceiving. A significant contraction in defense spending, and also perhaps a seasonal reduction in inventories, had a negative impact at one point. Even so, the figure is bad and, due to the scant attention paid by the markets, there are reasons for concern.

There are two factors in this number that can persist throughout the year: the weak behavior of exports and the growing impact of an inevitable fiscal contraction. Believe me, the market is not discounting an economic halt in the United States, rather the contrary. The figure accentuates the high sensitivity of the American economy to public spending and raises doubts about the sustainability of a recovery without a continuous fiscal and monetary stimulus.

The week has additionally furnished us with more contradictory figures: one positive, employment; the other negative, consumer confidence. All these numbers, together with the exuberant behavior of world markets and an optimistic consensus about the future of risky assets, make me very nervous. The vast majority does not see any reason why the American stock market could fall; similarly no one was optimistic about the possibilities of European markets last spring. The investment community is very optimistic but I continually see more reasons to be cautious, especially in the United States. There, while the market is not particularly expensive, corporate profits are at historic highs, as are the expectations of benefits that I see difficult to fulfill. It is happening exactly opposite to Europe. Here, the market is cheap while we pass through the bottom of the cycle. I prefer Europe.