Thoughts on QE, the US Economy & the Markets

I did a segment on Boom Bust this afternoon talking about the US economy, the markets and QE.  Here are some bullet points, but you can watch the full interview below or click this link.  I’ll have to apologize in advance for my attire.  I was wearing a suit, but Ed Harrison who produces the show, said that it would be too douchy if I wore a suit at the beach AND the woods.  Just kidding, he didn’t really say that (Ed’s too nice to call me a douche to my face even though I am one), but I did think it before the segment….

Here is the short, short version:

• The US economy is still operating well below capacity.  The gradual improvement in the economy over the last few years is a sign that we’re filling that capacity shortage slowly, but surely.
• It’s a mistake to get too bearish about Q1 data.  This truly was a seasonal anomaly and the data in recent months has proven that we’re seeing a big comeback in the data after the Q1 lull.  PMI at 57.5, recovery lows in jobless claims, double digit rail gains and recent housing data are all signs that the economy has thawed after the brief winter slowdown.
• The markets are forward looking.  Focusing too much on the weak Q1 data at this point is leading people astray.
• The economy is improving, but the substantial amount of slack means the economy is probably still too weak for a sustained inflation to occur.
• It would be a mistake for the Fed to tighten sharply at this point as the economy remains fragile enough that a shock could tip us back into a deflationary or recessionary environment.

Or you can watch the interview here: