"Kee" Points with Jim Kee, Ph.D.

This is a short week but I did want to mention a few things from last week that more or less sustain our overall outlook. In Europe, today’s headlines read “European leaders choose aid over default” as Greece was awarded $173 billion in aid in exchange for reforms aimed at bringing Greek debt down (and a writing off of $141 billion of Greek debt by private bondholders). This money comes with “unprecedented controls on Athens’ ability to spend the money” (Financial Times). Importantly, most of the funds come from other Eurozone governments, not the International Monetary Fund (IMF). I think the key takeaway here is that the agreement reflects the European community’s continuing preference for integration over dissolution. Also, GDP in the Eurozone  declined .3% in the 4th quarter, which is a bit less than what was expected.  Elsewhere in the world, China cut its required reserve ratio for banks over the weekend, which translates into looser monetary policy and easing liquidity conditions (and a positive for China’s stock market – GaveKal). I think the key takeaway here is the ongoing confirmation that China fears rising unemployment and the social unrest that comes with it, and will do everything in its power to avoid a “hard” (GDP growth less than 5%) landing. Finally, in the U.S., most of the data confirm continued expansion somewhere in the 2%-3% range. Jobless claims continue their “impressive downward trend” (Wells Fargo Securities) and home sales – both existing and new homes – appear to be turning up. Other data, including retail sales and manufacturing, tell the same moderate growth story. So, to summarized, we see continued evidence of 3 themes: moderate expansion in the U.S., continued efforts towards reform and fiscal integration in Europe (with a possible and hopefully mild recession) and continued efforts towards sustaining growth in China.