THE MARKETS HAVE CONCLUDED that a recession is likely next year — will this become a self-fulfilling prophecy, as the Federal Reserve’s medicine kills the patient? The stock market seems shrouded in gloom.
BUT THIS WOULD BE THE ODDEST RECESSION in decades, with unemployment at 3.7% and plenty of Washington money still to be spent. Moreover, there are plenty of reasons for optimism — let’s look at ten this morning:
1. UKRANIAN TROOPS CONTINUE TO ADVANCE, perhaps not as quickly as their stunning counter-offensive in September, but make no mistake — Russia, humiliated, is still losing this war. And there’s a glimmer of hope that serious negotiations could begin this spring, after Ukrainians show the world that a cold dark winter will not break them.
2. CHINESE PRESIDENT XI JINPING is in no rush to invade Taiwan, and he wisely has toned down Zero Covid policies. In many respects, he’s a pragmatist, focused on trade and improving China’s economy.
3. U.S. ELECTIONS THIS FALL went smoothly — few allegations of voter fraud, and the political temperature seems to be lower in the U.S. Fears of American unrest have subsided.
4. MARKET-UNFRIENDLY POLICIES are have little chance of passage in the new Congress — no big tax hikes or ambitious new spending plans, as the Progressive Agenda collides with the right-wing House.
5. INFLATION HAS PEAKED, as energy prices fall and the economy begins to soften. Will the Fed get inflation down to 2%? That’s unlikely any time soon, but the direction is downward despite the hot labor market.
6. WHETHER YOU LIKE HIS POLICIES OR NOT, the country seems relieved that Joe Biden has had a decent year — lots of legislative accomplishments, and he has unified NATO on Ukraine. Sources insist that Biden has not made a decision on running again; we have believed that he won’t but that’s now a much closer call.
7. THE POLITICIANS WANT TO MOVE ON IMMIGRATION: The labor shortage is a huge drag on economic growth, and a more liberal immigration policy is warranted, as we wrote earlier this week. An immigration reform bill could pass — if not this month, then at some point in 2023.
8. THE BUDGET DEFICIT IS PLUNGING, down from about $3 trillion two years ago to around $1 trillion now — still high, but the fixed income markets aren’t worried, as a more restrictive spending mood emerges in the new Congress (except for defense outlays).
9. WASHINGTON GOT A WAKE-UP CALL ON ENERGY THIS YEAR: Renewables may be the wave of the future, but not yet. Even many Democrats concede that this is not just about drilling and exploration; it’s also about transporting fuel through pipelines and then refining it. The U.S. and Canada have loads of fossil fuels, which will continue to play a major role.
10. IT’S BEEN RAINING EVERY FEW DAYS IN CALIFORNIA, with more coming this weekend. The worst drought in modern U.S. history isn’t over, but at least it isn’t getting worse.
TO BE SURE, THERE ARE PLENTY OF ISSUES to worry about: Iran’s terrorism, a possible over-reaction on interest rates from the Federal Reserve, a disturbing new flu and other viruses, the under-reported trade friction between the U.S. and allies, etc. But there are plenty of reasons for optimism — at least ten.
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