That seems to be the message from the respected Economic Cycle Research Institute, whose weekly index of leading indicators has started turning up and seems to be staying above cycle lows during Q4. Economic activity in the US does seem to be contracting at a lesser rate and this is telling us that light at the end of the tunnel may not be an oncoming train.
As the Federales continue their quest to become the largest hedge fund in the world, leading the greatest Re-Leveraging in the History of the World, recovery will get here eventually. However, there remain questions about the medium and longer term impact of this Re-Leveraging, including the eventual rise of inflation and over-regulation…
On the accounting front, expect the theme of less worse to continue as new FASB pronouncements will allow banks to create capital (via retained earnings) out of what some may call ‘thin air’. Combine positions on OTTI and FMV with the ability to restate historical ‘non-credit related’ OTTI losses from retained earnings to accumulated Other Comprehensive Income and regulatory capital rises (while total shareholders’ equity stays unchanged). When the FASB caves in, it does so big time…and one would expect international accounting standards – where they have not done so – to follow suit. More fuel for ‘less worse’.
And as we all see and hear, at this ‘less worse’ period, there are always fascinating commentaries going around. Perhaps one of the most interesting was a former bank regulator who called the Federales’ bank stress tests a sham, designed to fool the American people. This could very well be true, but stress test impacts might easily be offset by accounting and related machinations.
It reminds me of the punchline to the old joke about the guy trying to find a new accountant.
“How much is 2+2?,” asks the client.
“What do you want it to be?” replies the accountant.