My weekend reading didn't produce much insight for next week. There is a lot of political noise out of US and China over the last few weeks. The economies are murky. I tend to believe that the developments are slightly positive: underneath the government supports the private sectors may be slowly adjusting for an upturn.
PIMCO's "new normal" thesis can't be ignored. It argues that we're entering a low growth period in the next years or decades due to de-leveraging, re-regulation and de-globalization. US consumers will no longer play the leading role of economic growth, banks and other financial companies will not be able to help fuel the growth with easy credit, and thus much of the globalization processes that happened before will be slowing down.
PIMCO is an astute yield curve player. Their edge is in getting the big picture more or less right. But even good arguments like these can be carried too far. US and the world economies are not homogeneous. There will be sectors, and within a certain sector some businesses, that can flourish in such environment. Technology may be one. Even within a beaten down sector such as housing, one may be able to spot one or two home builders that have adjusted to the new reality and are prepared to grow again.
In the US the place to look closely is California. Despite its fiscal disaster and high unemployment rate, it still has a vibrate tech sector, and its housing market somehow has managed to find its footing. I've lived both in the Bay Area and SoCal for the past 14 years. I think if the recovery is real for Cal, it'll be real for the US. If the "new normal" thesis is broken, it will be broken in California.
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