Archive for the ‘inflation’ Category
Friday, February 19th, 2010
As mentioned yesterday where the wholesale inflation number was surprisingly higher than expected the retail inflation out this morning was very low. It actually shrank for the first time since 1982 if you take out food and energy. With those two items it still was very low. Wholesalers can not pass through inflation to the consumers, at least not yet in the face of a very weak economy.
On the other hand last night the Fed raised one of the two interest rates it controls. This is the rate that the central bank charges for emergency loans to banks. It went from .50% to .75%. This is a sign that the Fed sees enough improvement in the financial sector to start tightening money though this is one of the most benign tightenings it could undertake.
Inflation and the Fed’s action is good news both for the economy and the stock market. Inflation is not a problem yet and the Fed has signaled a willingness to fight future inflation by making a move, albeit a minor one, early. It is also a sign that the dollar may not be as weak as feared. Of course this is only one small first step. Still the battered dollar is faced with a massive spending program which will continue to push its value down.
All and all this was a good week for the stock market and the economy. Only time will tell us if the correction is over.
Good Trading
Steve Peasley
Posted in Currency, Financial Outlook, Industry Analysis, Uncategorized, commodities, inflation | No Comments »
Tuesday, February 16th, 2010
With this being a holiday week and with little economic data out this morning the market decided to push stock prices higher. It may be caused by nothing ‘bad’ happening over the long weekend in the world. Maybe traders feel the correction phase of the market is coming to an end though the indexes only fell about 7% which is light for a correction. Of course all we have had are light corrections since the rally began last year.
Greece is still a problem as the rest of the EU talks about a bailout without calling it a bailout. Greece itself seems to be walking around like a zombie telling anyone who will listen that they have no problem.
There are many issues that could upset the worldwide recovery as China deals with a budding inflation problem. So far they have tightened their money supply twice this year to hold down inflation.
Despite these headwinds there is a rather large tail wind for our economy. Only about a third of the stimulus package passed last year has been spent. As a result, this year and next will see massive spending in our country and at a time where economic stats are showing us the beginnings of a recovery already. That spending is a major push and should support continued growth.
Will that push stock prices higher? Earnings and growth are the key. The chances are good that both will do well this year.
Good Trading
Steve Peasley
Posted in Current News, Financial Outlook, GDP, Hope, Uncategorized, inflation, mutual funds, recession, stimulus package | No Comments »
Wednesday, May 6th, 2009
The market struggled this week but was resilient. In the first part of the week fear about the ’stress test’ hovered over the traders. The unknown result will not be known to the public until next week or the week after. On Tuesday there were hints that Bank of America and Citicorp were being pressured to increase their capital structure though the CEOs didn’t agree. That pressure was a direct result of the stress test- at least that is the assumption.
Consumer confidence increased sharply in April. The Conference Board’s reading went from 26.9 to 39.2. That reading is still low but the degree of increase was unexpected. Later in the week a Consumer Sentiment report was released and it too was higher. I would not read too much into these numbers. You can look at actual retail sales each week which will give you more information than a monthly confidence report. Much of the confidence (or lack of confidence) by consumers may mean very little to us as investors. The swine flu for instance may affect consumer confidence but will that mean consumers will stop spending? They might spend differently. Any recent event will affect how people ‘feel’ about things, good or bad, but will it actually spur them to spend or stop spending? The evidence is unclear.
Also out this week was the Case-Shiller 20 city home index report. The problem with this report is it was for February. That is ancient history to the stock market. It showed a fall of 2.2% adding to January’s fall of 2.8%. Prices year over year were down 18.6% from 19% in January. This report is virtually useless. It tells us what happened two months ago. Who cares! I will not be writing about this report in the future. We know from more recent data that sales in homes are increasing and inventory looks to be flattening. It’s still too early to come to any conclusion. Housing will be weak but evidence suggests a bottom is on the horizon.
Also out this week was the first quarter GDP number which was down 6.1%, a bigger drop than expected. The market rallied strongly when this number came out. Welcome to the psychology of the stock market. So why would it move up? First, this number is also backward looking, but looking closer you will see that there was a large drop in inventory and exports. Managing inventory is something that traders watch closely. Inventory has fallen to a point that requires a build up over the next few months. At the same time consumer spending has gone up putting more pressure to increase inventory. Inventory building will mean a better GDP number in the future. All that is in the future and of course that is exactly what stock investors and traders react to.
On Thursday Chrysler’s bankruptcy was announced by President Obama. This is a good thing. We need to let the bankruptcy laws work. It would probably be better to let other companies file for bankruptcy as well. Did we need to save the banking system? The answer is yes. Do we need to save any other industry? The answer is no. Even in the banking system those responsible for the failed banks need to be punished, but the system needs to be supported for the short term. The real question is how long and how intrusive will the government be in private industry? One of the biggest U.S. criticisms in recent years has been foreign government involvement in foreign companies. Those companies with government backing were seen as unfairly competing with private industry. Now we, in the U.S. are doing the same thing. It damages the U.S. argument that we let free enterprise pick the winners and losers and not support otherwise failing companies with government dollars. That seems a bit hypocritical.
This morning, Friday, a stronger ISM (Institute of Supply Management) indicated that the industrial sector is picking itself up. It is still shrinking but improving. This was the fourth month in a row of an improving ISM report.
No matter what spin you put on it, the stock market is telling us that things are going to get better for the economy. History tells us that over the next year or two there will be a rally of over 50% in the stock market. This will not be a march straight up in prices. Expect pullbacks and use them to buy. Do not let fear control your decisions.
Posted in Currency, GDP, Industry Analysis, banks, depression, inflation, stock market | No Comments »
Wednesday, April 29th, 2009
The first quarter GDP reported today showed us shrinkage of 6.1%, much worse than the 4.5% to 5% expectations. That was close to the 6.3% drop for the fourth quarter last year. Of course the devil is in the details. Much of the decline was caused by the lack of business investment as inventories were strongly reduced and companies shed employees and reduced capacity. However consumer spending increased, rebounding to 2.2% growth and the savings rate rose to 4.2% so the news was not all bad.
This information is interesting and it certainly makes headline news on what has happened in the economy, but for investors it is backward looking. It tells us very little about the future and it is the future in which we invest. The stock market saw these last two quarters coming with a steep fall in prices in 2008 and a sharp further decline in the first two months of this year finally hitting bottom on March 9th. The stock market is forward looking. It has now risen from that March bottom sharply, but lately it has been back and filling, going sideways with a slight upward bias.
The stock market is a leading economic indicator. It is telling us times have hit bottom but since it is still down for the year it is impossible to say the economy is in the clear. It’s not! The market is saying we are in tough times but improving slowly. I will take improving slowly and be happy.
Good Trading
Steve Peasley
Posted in GDP, Important, Industry Analysis, banks, inflation, stock market | No Comments »
Tuesday, April 28th, 2009
This will be the last big week of earnings reports for the first quarter. There will be more in the weeks ahead but the amount of companies reporting will fall dramatically. Earnings as reported for the first quarter have been poor but surprisingly better than expected especially in the financial sector. The real story is in the tech stocks. Their earnings have been very good in comparison to other industries. Profits are
still rolling in nicely. Qualcom and Verizon reported with Qualcom numbers coming in at the high end of forecast. Verizon grew their earnings by 5%. Much of that was from the acquisition of Alltel Corp, but they also increased their client base without the purchase.
The worst in the economic slump is over and stocks will begin to trade based on fundamentals again. Those fundamentals are weak and will only begin to improve in the coming months. However, stock prices may have hit their lows for this cycle. The market is still down for the year but things are looking up and we have had a sharp move up from the bottom. Of course there was a sharp move down for the first two months of the year with the cycle low on March 9th. That low is the bottom – at least it appears that it will mark the bottom.
Good Trading,
Steve Peasley
Posted in Currency, depression, inflation, recession, stock market | No Comments »
