1. Low levels of business inventories: For decades, business
inventories have been at the root of fluctuations in the business
cycle. Part of the so-called "Great Moderation" in economic growth
relates to improvements in inventory management.In the current
situation, inventories have been extraordinarily well-managed,
falling to their lowest level ever relative to sales. This means
that businesses won't have to cut production much in order to bring
inventories to desired levels. Importantly, lean inventories mean
that any uptick in spending will quickly lead to increases in output
and boost economic activity. I can't say enough about how important
this dynamic is.


2. Fed rate cuts: Trillions of dollars of debt are being refinanced
at lower interest-rate levels and the cost of new borrowing is now
much lower. Fed rate cuts work with a lag, but the benefits begin
to accrue immediately. In the current situation, rate cuts will help
alleviate mortgage-reset problems and help banks to expand their
balance sheets.Commercial banks currently have about $10 trillion in
assets, some of which has been needed to write off bad loans as well
as bad bets in securities markets. In some cases, banks were forced
to absorb complicated off-balance-sheet vehicles, constraining their
ability to lend. Fed rate cuts will help banks to grow their assets
by at least $1 trillion this year and improve their ability to lend
again. Banks have actually seen a faster-than-usual 10% rate of
growth in their assets since the summer months.


3. Corporate cash: Corporations hold vast amounts of cash relative
to the amounts they are spending. This may buffer the economy
against weakness and sow the seeds for increases in capital spending.


4. U.S. exports: U.S. exports have run about $500 billion more in
the past 12 months compared to the same period five years ago. This
is expected to continue in light of strength in the global economy
and the weaker U.S. dollar, which tends to boost exports by making
U.S. products more affordable.

5. Construction spending should flatten: The construction of new
homes has been shaving about a percentage point off of the U.S.
gross domestic product. This should slow at some point this year
because construction can only fall so much given basic needs for
shelter, unless we are going back to living in caves again.


6. Bye-bye, subprime: Roughly $40 billion of subprime mortgages
have been resetting each month, but this figure will move nearly to
zero by early next year because banks stopped making subprime loans
with two-year teaser rates, so there will be no loans to reset.

7. Sovereign wealth funds: China holds nearly $1.5 trillion of
international reserves and Russia has $475 billion. Many other
countries hold vast amounts of money, particularly countries in the
Middle East, thanks in part to strength in the global economy and
increases in commodities prices, particularly oil. This means that
if these countries wish to boost economic activity, they need only
dip into their reserves.


8. Fiscal stimulus: This is a controversial one, but I am hopeful
that the spending uptick that results will spark the production
cycle. With inventories lean, any uptick in spending will
quickly boost output and hence boost the growth in personal income.


9. Innovation: Companies are still making interesting things that
people want to buy, don't you agree? This is a major plus for the
economy. Another growth area in this regard is alternative energy.


10. New administration: This is not meant as a statement on the
current administration, but it is a fact of American life that there
tends to be a sense of optimism in the U.S. when a new
administration takes office. Perfect timing for the economic
recovery.