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The uber-bearish strategist at Gluskin Sheff was recently asked to list what exactly would change him into an optimist for the economy and the equity markets.
Here is his top 10 list:
- Initial jobless claims below 400k on a sustained basis. This would lead to job growth strong enough to generate organic wage growth.
- Improvement in housing inventories to a 5-6 months’ supply backdrop. This would help establish a floor under home prices.
- Signs of a turnaround in the money multiplier, money velocity and the ratio of commercial bank non-liquid assets/total assets. Any sign that the debt deleveraging cycle has run its course.
- A new “killer app” or some major technological breakthrough would be nice.
- A sustained decline in oil prices that is induced by new supplies (or peace in the Mideast?) as opposed to demand destruction would act as a de facto tax cut.
- Structural economic reforms in the world’s “surplus saving” countries like China, India and Germany that stimulate their domestic demand, and hence bolster our exports and reduce the global reliance on the U.S. as the consumer of last resort, would be a huge plus.
- A peaking out in the personal savings rate (the sooner we get to 6%-8%, the better) – get to a level consistent with pent-up demand.
- Consumer confidence closer to 100 (typical of expansion) than the current 50 reading.
- An end to the steep cutbacks at the state and local government level.
- New and more effective political leadership globally – could the Cameron victory in the UK be a leading indicator towards fiscal probity?
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