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Lean Cows Versus Fat Cows

In one of the most memorable stories from the Book of Genesis, Pharaoh had a dream in which seven fat cows were swallowed by seven lean ones. Pharaoh and his men were puzzled until Joseph offered his interpretation: The fat cows represented seven years of prosperity, which would then be swallowed by seven lean years of poverty and famine.

The parable seems apt for today, as the AP reports some rare good news: Markets are up nearly everywhere, mostly due to stronger than expected growth in major American companies like Apple and AT&T. Investor confidence, while still lower than it was in its pre-recession heyday, also appears to be rising, a promising sign for a recovery which still has yet to take off.

Yet there are warning signs in the report. This new market confidence is driven nearly entirely by the performance of American companies; many of their European counterparts have posted more modest gains or even losses. Meanwhile, the messy state of European politics is doing little to reassure investors that global markets are sound, and some are beginning to worry:

Though a Dutch bond auction on Tuesday helped soothe market fears, investors remain edgy about how the crisis will develop over the coming weeks with general elections taking place in Greece and France. The Netherlands is also expected to go to the polls later in the year after its government collapsed on Monday over a failure to agree on an austerity package.

Over the past year or two, we’ve seen positive economic signs evaporate when another crisis strikes—usually in Europe. This begs the question: could lean cows in Europe be swallowing up fat cows elsewhere?

Britain’s economy has just entered the dreaded “double-dip” recession after posting two consecutive quarters of negative growth. As the BBC notes, this will deal a blow to investor confidence:

“It is clearly not good news, the missing link in the economy has been confidence,” said Graeme Leach, chief economist at the Institute of Directors . . . .

“These are relatively small falls, so we shouldn’t be too alarmist.

“[But] regardless of the figures, it is the message that comes out to business—to be cautious—exactly when we want them to be a little more aggressive in terms of recruitment and investment.”

The dangers here are very real, and they remind us of why Americans should keep a close eye on unfolding events in Europe. Our cows are finally getting fat again; unfortunately there are still plenty of lean cows around to watch out for.

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  • Kenny

    Mr. Mead,

    As a student of history, I think you may want to check out “The Fourth Turning” by Strauss & Howe.

    Based on a 500-year study of the Anglo-American world, these authors claim that the U.S. is about to enter the fourth of four turnings of an 80 year generational cycle, and that this fourth turning will be akin to a 15 – 25 year long economic winter.

    Such a mega-trend would mean that the relatively little ups and downs that you are now seeing in the market and economy, both here and in Europe, are mere noise.

    The big event is about to unfold, and the direction it points is DOWN.

  • Mrs. Davis

    A necessary condition to a recovery in the economy is a recovery in the housing market. While we may have hit or will soon hit the housing bottom, we are far from a recovery because of the backlog of foreclosures, the shadow inventory due to pent up sellers and boomers waiting to exit, and the absence of first time buyers due to unemployment and overextension of credit on student loans. This recovery will be long and slow. Policy can make it take longer, but it cannot accelerate the repair of balance sheets from the borrowing binge of the oughts.

  • WigWag

    American fat cows suckle on the mothers milk of John Maynard Keynes thanks to President Obama. European lean cows choke on the weeds of austerity thanks among others to the man who Professor Mead has anointed as the second coming of Winston Churchill; that would be David Cameron (with plenty of help from Chancellor Merkel).

    Obama and the Democrats stimulated the economy while the Europeans adopted the plan recommended by Congressional Republicans. The United States is emerging from recession slowly but surely while the British are experiencing a double dip.

    It’s time for Professor Mead to admit that Keynes and Krugman were right and he was wrong. Come to think of it, it’s time for many of his readers who were so convinced that austerity was the answer to take a peak at that shining city on a hill. It’s spring time in America thanks to the Democrats. The only thing that can screw it up is if American congressional Republicans get their way or if dimwitted European leaders continue to believe that the solution to an economic downturn is to be increasingly frugal.

    Professor Mead’s readers who can’t bring themselves to admit that America’s recovery is due to fiscal stimulus while Europe’s continuing malaise is due to
    austerity are every bit as oblivious as all those “greens” Professor Mead is always complaining about who just can’t bring themselves to admit that their paranoia about global warming has turned out to be nothing more than a fantasy.

  • thibaud

    “Our cows are getting fat again”

    One cow and its calves are getting fat. Aside from APLL, QCOM, CRUS etc (and the oil majors), however, there is little real earnings growth and next to no employment and household growth across the US.

    This remains basically a jobless recovery in the US, and there’s no sign that that will change so long as we have a tax system and a health insurance system which together create huge disincentives to hiring.

    Tax reform + severing the link between employment and health insurance would spur a huge increase in employment by US companies. A pity that neither party gets this.

  • thibaud

    Actually, there are a few more fat cows: the dollar stores and the handgun makers are growing by leaps and bounds. I’ll buy $RGR again if it dips into the mid-40s.

  • Tom Richards

    Spring time in America my foot. No one I know denies the capacity of fiscal stimulus to produce short term upticks in GDP. The fact remains that you are seeing only a sunny spell in late autumn. Winter, as everyone’s favourite medieval fantasy dynasty would have it, is coming.

  • Kenny

    Amen Tom.

    Winter will soon be upon us. It can last something like 15 – 25 years as that’s how long it might take to iron the government stupidity & recklessness of the past 50 or so years.

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