Some Green Shoots

There are several positive signs out there.

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As much as I like the idea of economic "mustard seeds," I may actually prefer "green shoots" coming from the frozen winter earth. It is a metaphor tossed around at Davos. Here are some green shoots from Wesbury & Stein over at First Trust Advisers:

Despite continued problems in financial markets, sensitive commodity and transportation prices – the seismic indicators of economic geology – suggest that the economy may be “catching gear.” For certain, these are very early rumblings. But they are rumblings nonetheless. The price of gold has increased about $200 per ounce in the past 10 weeks.

Some argue that this represents a flight to safety, but Treasury bill, note and bond yields are up recently, suggesting this may not be the case. Meanwhile, oil prices bottomed in the mid-$30s and appear range-bound just above the $40 per barrel price. Another positive sign is that the Baltic Freight Index, a measure of international shipping prices, appears to have bottomed two months ago in early December and is up about 60% since then. This is a small rebound from the massive 94% drop from June to December, but it represents a notable turning point in direction.

Other key commodity prices, such as copper, nickel and aluminum have stabilized after bottoming in November. If “Great Depression II” were truly upon us, these commodities would not have found a bottom. During recessions, it is typical for investors to reach a point where they start to think that “this time around” monetary policy will not work. The long lags while we wait for the Fed’s bullets to hit the target cause many to lose faith. We doubt things are really different this time. Monetary policy is extremely loose and the seismic drums are scratching away. Some early warning signals suggest that despite real GDP weakness, an economic recovery should start taking hold by mid-year.