Bank of America On Why, Contrary To Popular Delusion, America Is Not Decoupling

Everyone's favorite stock pitchman, Bob Pisani, who lately apparently has the capacity to learn just one line and just regurgitate it ad nauseam, was on CNBC earlier screaming how gold is down because the US is so much better than the world, when in reality gold is once again being sold to fund early margin calls (yes, institutionals are that levered right now). As for the US decoupling story, which time after time is dragged out, only to be shelved once the impact of trillions in liquidity fades, and which is never different this time, here is none other than Bank of America explaining to the likes of Pisani why "the US economy is likely to prove a faulty engine of global growth." Read - no decoupling, despite what the market may be trying to say. And yes, the market, and especially the Russell 2000 is never the economy.

From Bank of America:

US a faulty engine of global growth


It is a testament to the psychology of the marketplace that the first story on Bloomberg TOP News reads, "Economy of US Enters Sweet Spot as China's Growth Slows." The article notes that "the US once again may be emerging as a main engine for global growth -- and at an opportune time, as Europe slides into recession and China's economy decelerates." This is a risky proposition, in our view.

Consider the following:

  • Real disposable income has contracted two months in a row and is flat over the last three, even in the face of a pick-up in employment. The improvement in consumption has been financed by a drop in the savings rate, down to 3.7%, the lowest since mid-2009. Weak income + lower savings = softer consumption.
  • The housing market data has softened. Virtually every housing indicator released in February has come in below market expectations: starts, newand existing home sales. While prices likely bottom this year, they are unlikely to turn in a way that stimulates new residential construction.
  • The consensus is mistiming the impact of the shock from Europe to the US. Europe is a local shock that goes global, hitting via the confidence and trade channels. It should take time first for Europe to slide into recession and then for the US economy to weaken.
  • Investors are only now beginning to focus on the fiscal cliff at the end of the year. The range of plausible outcomes is very wide and includes some very ugly outcomes. Faced with a dense fog of uncertainty, businesses and households will likely slow down.

So, in a number of respects, the US economy is likely to prove a faulty engine of global growth.

Bob Pisani thanks BAC for explaining it so clearly, even a caveman will get it.