Dangers Lurking on the Macro Front

ECB Queasy Over GSEs?: Also in today's news, Bloomberg carried a story called "ECB Sheds Holdings of U.S. Agency Debt." In brief, "The European Central Bank is selling all the bonds it owns in Freddie Mac(FRE Quote) and Fannie Mae(FNM Quote) and recommended that its national central banks do the same, according to a person who has seen the ECB's recommendation." This is a story that hasn't received much play yet (perhaps due to the fact that the source of the information was not named), but if true will cause serious indigestion for our fixed-income market. That will of course put more pressure on mortgages, and thereby housing.

Given very high debt levels generically, all that news looks rather unfriendly for the economy and, by extension, the stock market. (Granted, this month the economy has shown a few signs of brisker activity at the margin, but in the big scheme of things, that doesn't mean a whole heck of a lot. After all, a $10 trillion economy inhales and exhales, and one has to be careful when extrapolating from minor data points.) The news only worsens when one considers the signals away from stocks -- the bond market under a great deal of pressure, the dollar under pressure, and the metals moving up.

Deck Stacked to the Downside: Now, I am mindful of the argument about things always looking darkest before the dawn, and news always looking the worst at the bottom. (People who appear to have never experienced real financial turmoil are often quickest to throw out such platitudes.) But when I look across a broad spectrum of what's going on, and add in the fact that corporations are not only not hiring but laying people off, I continue to be very, very suspect of an economic recovery, or that the stock market can continue up dramatically higher.