Wednesday, February 10, 2016

AN IMPORTANT QUESTION WITH SOME IMPORTANT CHARTS........

AN IMPORTANT QUESTION WITH SOME IMPORTANT CHARTS

Currently, there is a plethora of commentary strongly suggesting that the U.S. economy is nowhere near recession. By the time the data is revised to reveal the recession it will be far too late for investors to do anything about it. The market, a coincident indicator of economic recessions historically, and is already revealing what future economic data revisions will eventually disclose.

If you are expecting an economic recovery, and a continuation of the bull market,then the economic data must begin to improve markedly in the months ahead. The problem has been that each bounce in the economic data has failed within the context of the current declining trend. This is not a good thing and is why we continue to witness an erosion in the growth rates of corporate earnings and profitability. Eventually, that erosion combined, with excessive valuations, will weigh on the financial markets.

For the Federal Reserve, the charts below make the case that continued monetary interventions are not healing the economy, but rather just keeping it afloat by dragging forward future consumption.  The problem now is the Fed has opted, by tightening monetary policy, to not "refill the punchbowl." Eventually, when the drinks run out, the party comes to an end.

With the Fed hiking interest rates, and talking a tough game of continued economic strength, the risk of a "policy error" has risen markedly in recent months.


Are we closer to an economic recession or a continued expansion?

How you answer that question should have a significant impact on your investment outlook as financial markets tend to lose roughly 30% on average during recessionary periods.  However, with margin debt at record levels, earnings deteriorating and junk bond yields rising, this is hardly a normal market environment within which we are currently invested.

Leading Economic Indicators

LEI-Coincident-Lagging-012016

Durable Goods

Durable-Goods-020816

Durable-Goods-020816-2

Investment

GDI-Real-020816

Private-Investment-GDI-020816

GDI-SP500-020816

ISM Composite Index

ISM-Composite-020816

Employment & Industrial Production

Employment-Pop-Claims-020816

Capacity-Utilization-Production-020816

Retail Sales

Retail-Sales-012016

Retail-Sales-EconomicCycle-012016

PCE & Imports

PCE-Imports-012016

Corporate Profits As % Of GDP

SP500-NetProfit-Margins-012016

The Broad View

GDP-6-Panel-Chart-020816

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