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Metaxic Imbalance

By, 10/31/2007

Story Highlights:

  • The Fed's rate cut of 0.25% today is too small to matter, but it reveals just how jittery most folks still are about the economy.
  • In the midst of the worry, US GDP surged past expectations and the US was once again crowned the most competitive nation in the world.

The Greeks had lots of strange ideas. One particularly interesting Greek idea is metaxis, where two or more distinct realities in paradox with each other vie for attention.

There are infinite ways to interpret the world, and MarketMinder has spoken often in this space on today's cavernous rift between sentiment and reality. (Sentiment is far too dour relative to today's economic strength.) Perhaps we can call today's investor sentiment one of severe metaxic imbalance. Folks continue to see a declining world full of economic woe while reality says otherwise.

Mirroring today's dour view, the Fed cut its target rate by a quarter point to 4.5%, citing housing market "turmoil." If that's really the logic, it doesn't add up. Maybe it's just us, but aren't stocks up nicely this year, interest rates still benign, and the economy chugging along? It makes us wonder which reality folks are living in today.

Today's Fed's rate cut is too small to matter, and we don't believe it will affect the economy much either way. We've written a great deal on the Fed's recent actions in past commentaries:

  • "Small Cuts Don't Much Matter," 09/14/2007
  • "Saving the Day (And Not Much Else)," 09/18/2007
  • "Ben to the Fake Rescue!" 09/19/2007

Coincident with a rate cut designed to rescue the so-called sluggish economy, the initial report of US third quarter GDP growth was reported 3.9%—stronger than expected and higher than the second quarter's final 3.8% reading. (In case you forgot, the third quarter was the one where things were prophesied to implode. After Q2's supposed "unsustainable" growth, the credit crunch, sluggish housing market, and tapped-out consumers were all predicted to tank GDP.) What happened!? Where's all the woe!?

Housing Woes Can't Derail Economy
By Chris Isidore, CNNMoney.com
http://money.cnn.com/2007/10/31/news/economy/gdp/index.htm?postversion=2007103110

Today's GDP report showed personal consumption growth at a 3% annual rate—that is, consumers increased their purchases. Exports grew 16%. Top that off with prices rising at only a 0.8% pace in the quarter, and we can't help but feel this is a pretty robust economy.

But the news gets better. Throughout the current bull market, CEOs and politicos alike have bemoaned America's beleaguered competitiveness. Repeatedly we heard about foreign countries taking the reigns of world business leadership. But a report today finds precisely the opposite: The US free market system has once again made America the most competitive nation in the world.

US Recaptures 'Competition Crown'

http://news.bbc.co.uk/1/hi/business/7069648.stm

To be fair, we wouldn't put much stock in this report—we're not quite sure how "competitiveness" can be measured in a consistent, objective way to begin with. Nevertheless, it surely indicates a world in stark opposition to what most feared and expected.

Just for fun, we Googled "US competitiveness" to see what else we'd find. Below are a few typical examples. The first one was published in 2005.

Intel Exec Fears for U.S. Competitiveness
By Ina Fried, CNET
http://www.news.com/Intel-exec-fears-for-U.S.-competitiveness/2100-1008_3-5598936.html

This one's from today:

Roach: Globalization as a Threat
By the Staff, CNNMoney.com
http://money.cnn.com/video/globalforum/#/video/fortune/globalforum/2007/10/31/fgf20highlights.fortune

These both are spectacular in their wrongness. One need only see today's worldwide record prosperity to prove it. For years now folks have been fretting too many false fears, seeing a different reality than the data show. In midst all that fretting, the economy has surged and stocks delivered great returns. Metaxic imbalances are great times for investors to accumulate stocks. Take advantage of it while you can…at some point sentiment will match, and perhaps surpass, economic reality. But that day seems far from here. Enjoy!

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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