DAVID WOO: The 'Moment Of Truth' For The US Economy Is Approaching In Just The Next Few Weeks

TBI ^ | 2-7-2013 | Joe Weisenthal

[blam]

DAVID WOO: The 'Moment Of Truth' For The US Economy Is Approaching In Just The Next Few Weeks

Joe Weisenthal
February 7, 2013, 12:05 PM

Yesterday at Bloomberg we got the chance to meet David Woo, BofA/ML's brilliant strategist for Global FX and rates.

The focus of our segment was on the Japanese yen, but off camera Woo had some interesting thoughts on the US economic situation, and why we're about to approach what he calls a 'moment of truth.'

He noted to us that there's been a growing divergence between the S&P 500 and consumer sentiment, and that it may be the case that the expiry of the payroll tax hike is going to have a meaningful effect on spending. This phenomenon, he noted, might not show up for a little while, because it could take time for people to realize that their paychecks have been hit. Some people who only get paid at the end of the month may have not even had the opportunity to digest or assess the new reality, as of the time of recent data.

He mentioned, for example, that when the payroll tax cut first went into effect in early 2011, it took awhile for people to react and for spending to rise. These things have a lagged effect.

But all that's coming to a head.

In a followup email today he writes:

"The divergence between buoyant risky assets and sagging US consumer confidence since October has reached a point that a resolution is now both necessary and inevitable. The catalyst or the moment of truth may be the approaching sequestration crisis. In our view, the market is too complacent about the risk of a full implementation of the sequestration that will lead to a sharp slowdown

(snip)

[Travis McGee]

Don’t worry, it’s different this time.

[thecodont]

I know zero, zip, NADA about the stock market, but right now I’m compelled to view old “Wall Street Week with Louis Rukeyser” YouTube clips from right around the time of the crash in 1987. Someone named Zweig was supposed to have had a good handle on what was going on.

[familyop]

"...yet everyone acts like nothing is wrong, it’s like the calm before the storm, I’m questioning my sanity, it’s as if what’s right is wrong, and what’s wrong is right, strange times!"

That's because we're living in our improved environment without all of those awful smokestack industries and the scary breeder men who worked in them. [Oh, yeah, a whole heap of irony and sarcasm there--not about you but about our contemporary leadership.]

Do you see? Look at third world countries known for their agricultural and energy production without much manufacturing. Do you see farther?

[Excellence]

Wall Street Week with Louis Rukeyser

Oh, my, I haven't thought about him in such a time! He passed away, yes? Watching the crash of '87 was like watching the aftermath of an earthquake. There wasn't anything anyone could do or have done, and what a mess it left behind.