Lord Abbett’s Ezrati: Economy Not as Grim as It Appears

Addressing the three potential disasters he mentioned in reverse order, Ezrati also said that the supercommittee was likely to surprise everyone and come up with budget cuts that top their mandated $1.2 trillion, and that, further, those cuts would actually make it into legislation.

The European situation, he said, was driven by three factors that would prevent dissolution of the eurozone and chaotic default. Those are the “tremendous political capital” that is at stake for European leaders; a recognition by Germany that one way or another it will have to pay—either to bail out the peripheral eurozone or to bail out banks; and the fact that the European Central Bank “finally stepped up to help the eurozone survive” by buying Spanish and Italian bonds.

Last, regarding fears of double-dip recession, although he conceded that the economy “will not boom” and unemployment was still high, Ezrati claimed the U.S. economy would not sink back into recession. Pointing to lower oil prices, what he said was a stronger household sector and Japan’s return to “almost 100% capacity” after its triple disaster earlier in the year, as well as markets “in better shape than they were” and a housing market that “seems to have stabilized,” he said that people would return to junk and munis for higher yields after a flight to quality had “driven them to agencies and Treasuries.”