Tags: us | economy | flex | muscle

Harris Private Bank: US Economy Starting to Flex Its Muscle

By    |   Friday, 10 February 2012 10:03 AM

While nobody is ready to call the economy Mr. Olympia, the U.S. economy is beginning to flex its muscle.

The addition of jobs, the benefit of zero interest rates, unprecedented monetary creation and a $1.2 trillion annual budget is starting to build bulk, according to the Outlook for Financial Markets March 2012 from Harris Private Bank.

Equity markets kicked off the year with one of the best Januarys in 18 years as the U.S. economy expanded and fourth quarter earnings reports encourages investors.

The MSCI All-Country World Index surged 5.8 percent, according to Bloomberg. January's gain represents the best start of the year since 1994's 6.5 percent gain. The S&P was up 4.4 percent, the best January since 1997.

Over the last 102 years, the median annual Dow return was 20 percent in years when it gained 4-6 percent.

Things are looking up indeed and they could be better still. "If investors just focused on the fundamentals and discounted the daunting headlines, stock market values would be substantially higher,” advised Jack Ablin, chief investment officer, Harris Private Bank, and the author of the monthly report, in a prepared statement.

There's plenty of good news. Zero percent overnight rates have gone a long way toward boosting demand, reducing private debt and improving asset values. Consumers have paid down their household debt to 2000 levels when gauged against GDP. Housing is stabilizing and Harris reports that it suspects a "normal" spring selling season will bloom in 2013.

The report also warns investors clutching bonds for a certainty of return are overlooking the risk that their income will not keep pace with future spending needs. Remarkably, bonds have outpaced cumulative stock market returns over the last 30 years.

However, notes the report, "The notion that bonds can outperform stocks for such an extended period runs counter to preconceived notions and is a slap in the face to equity investors who have had to endure such financial uncertainty over the last decade."

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