An Urban's Rural View

Financial markets have apparently stared into the abyss and decided they aren't worried about the U.S. economy going over the fiscal cliff. The dollar continues strong. Stocks ended the latest week up 172, back over the 13,000 mark on the Dow.

Yes, politicians have made soothing sounds to the effect that a cliff-avoiding compromise is possible. But by all accounts no real negotiating progress has been made. And whatever happens in Washington -- cliff or compromise -- the result is likely to serve as a drag on economic growth.

So why are markets giving the U.S. the thumbs up? Any answer must of necessity be speculative, but here's mine. The U.S. may have problems, but other major markets look worse.

Europe? Greece is still teetering on the edge of bankruptcy, France has been downgraded and the European Union budget talks just collapsed.

Japan? Government debt as a percentage of the economy is higher there than in the U.S. and Europe by a substantial margin. And the man who looks likely to take over as the next prime minister is not considered economically sound.

Trouble is, these markets can change their minds faster than you can say fiscal cliff or European debt crisis. Enjoy it while it lasts.

On the other hand, if stocks and the dollar reverse course and head south, maybe some of that investment money will come back into the ag-commodity markets.

Urban Lehner
urbanity@hotmail.com

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