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Split between "Real" and "Asset" Economies Never More Clear Than Now
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Posted on 02/02/2012, 16:01
By Mike Larson
Many average investors like to think that the performance of the STOCK market is closely tied to the underlying ECONOMY. And in most normal times, that's true. But the current market environment is anything but normal.
I say that because we're in the midst of yet another round of money-printing-driven action. The fingerprints are everywhere ...
Super-low volume rallies in stocks. Levitation in gold. A slump in the euro first, driven by the European Central Bank's backdoor money-printing LTRO program, followed by a slump in the dollar, driven by more dovish talk out of the U.S. Federal Reserve.
All these clues tell me that the "asset" economy is floating on a sea of liquidity ... for now. Meanwhile, the "real" economy is doing nowhere nearly as good. And that only proves my thesis, once again, that QE is completely ineffective at helping average people on the street find jobs or promoting real, healthy, sustainable economic growth.
But for Wall Street bankers, it means Party Time!
Many average investors like to think that the performance of the STOCK market is closely tied to the underlying ECONOMY. And in most normal times, that's true. But the current market environment is anything but normal.
I say that because we're in the midst of yet another round of money-printing-driven action. The fingerprints are everywhere ...
Super-low volume rallies in stocks. Levitation in gold. A slump in the euro first, driven by the European Central Bank's backdoor money-printing LTRO program, followed by a slump in the dollar, driven by more dovish talk out of the U.S. Federal Reserve.
All these clues tell me that the "asset" economy is floating on a sea of liquidity ... for now. Meanwhile, the "real" economy is doing nowhere nearly as good. And that only proves my thesis, once again, that QE is completely ineffective at helping average people on the street find jobs or promoting real, healthy, sustainable economic growth.
But for Wall Street bankers, it means Party Time!
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Latest Data Sure Doesn't
Point to Booming Growth!
Since most of us care more about the real world, I want to start by reviewing the latest data to see what it shows ...
* December consumer spending was unchanged, below expectations.
* January consumer confidence, as measured by the Conference Board, slumped to 61.1 from 64.8 a month earlier. That missed expectations.
* January's Chicago-area manufacturing index fell to 60.2 from 62.2 a month earlier. That missed expectations.
* January's ADP jobs report showed the addition of 172,000 jobs. That was down significantly from 292,000 in December and below expectations.
* November's S&P/Case-Shiller figures showed home prices dropping by 3.7 percent year-over-year. That missed expectations.
* December new home sales fell 2.2 percent, while December pending sales of used homes dropped 3.5 percent. Both numbers missed expectations.
Are you seeing a pattern here? Because I sure am!
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| The markets are floating on a sea of liquidity. |
We're seeing the best start to a year for the stock market since 1997 ... despite an economy that's doing nowhere near as well as the economy did back then.
Why?
The answer is that the Fed, the ECB, the Bank of England, the Bank of Japan, and other central banks are all doing some version of real- or quasi-QE!
Ride the Wave If You Want ...
but Don't Get Swept Away!
So what's my advice for this kind of market? What can you do to ride the wave, without getting swept away?
Well, I've pared back broad market hedges and focused on a few, select asset classes and companies that can make the most of QE-driven gains ... without completely collapsing once the free-money party ends. And that's working out.
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So I suggest you follow the same game plan as long as central bank money printing, rather than underlying economic fundamentals, is driving the bus.
Then a few months or quarters down the road, when investors realize that QE is failing — once again — to spur real economic improvement, I'll flip right back to the strategy that performed so well last summer. Namely, the use of aggressive downside plays!
If you're already on board with me, you'll have access to crucial guidance on when and how to make that switch. But if you haven't given Safe Money Report a try, then I urge you to consider doing so now.
You can find out more ... and get started at a special discounted rate ... by clicking here.
Until next time,
Mike
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