Gold Ocean! Advisor
It's important to remember that stocks are more sensitive to earnings growth rates than the size of actual earnings. The current level of capacity utilization indicates corporate profits are trending lower. That has been a cause for stock market jitters. But current stock valuations imply that investors expect robust earnings growth and low interest rates. So if the Federal Reserve Bank (The fed) doesn't cooperate and raises rates - watch out!
The Fed has been loosening the purse strings to prevent the Asian Crisis from becoming a global downturn, reduce the impact of a potential bank or hedge fund failure, and perhaps to prepare for year 2000 paranoia.
Has the Fed over-reacted? If they have it will cause inflation and higher interest rates. Or have they underestimated the stress on the system? That would be deflationary, which is worse. We'll know in 6 months.
Capacity Utilization, a leading indicator of Corporate Profits, is highly correlated with stock market performance.
The Core inflation rate is picking up, but will the trend will continue?
If it does, higher inflation will drive interest rates higher which is bad for stocks and bonds, but may be good for real estate.
The Consumer Price Index is the most widely followed measure of inflation.
The tight US labor market is starting to translate into higher wages
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Employment costs are the largest contributing factor to inflation.
Housing Starts remain at healthy levels, not too fast, not too slow.
Total Housing Starts at or above a 1.5 million annual rate is considered to be a sign of economic stability.
But the Personal Savings rate is abysmal. It is not as bad as it looks since many people are investing. But the stock market is not always reliable.
It wouldn't take much for cash to be king again! Set some aside!
"In crisis there is opportunity!"
A low personal savings rate exacerbates any downward economic shocks that come along.
