INSIGHTS
JUN
24
WEEK AHEAD...
As the “Taper Talk” almost becomes annoying we must go over something so simple yet no one grasps its full meaning.
The Fed has pumped hundreds of billions of dollars into the US and to some extent, the World economy. It has created a flow of funds that have travelled throughout asset classes to prime the pump of economies that desperately needed priming. This increase in cash throughout the economic system has fueled: a four-year bull market, A recovery in the housing sector, an increase in car sales and helped lower the unemployment rate by over a percentage point. This liquidity is firmly in the system and it is being used. Credit, which was a major problem during and just after the financial crisis has eased somewhat and banks are lending. Everything QE’s 1-3 were designed to do, they did. So what’s the problem?
Simple, the markets were addicted to the idea of free flowing money and expected that money to continue to fuel a recovery and in turn a rising market. Without that money, the markets and the economy will sink back to recessionary levels.
That is nonsense.
After the weakness in the market and the slow rising panic of addicted investors is passed, we will see the market and the economy continue to improve. The money is in the system and it is working. Banks will continue expanding their lending. Companies with cash hoards will start to put it to work more vigorously and effectively and the US economy will continue to expand. Probably not as fast as we would like but three percent growth overall sure sounds a lot better than zero and don’t be surprised if we get close to there by the end of the year.
This week will be highlighted by almost every Fed Governor speaking at some point. These talks are informative for anyone who understands Fed Speak and that’s about it. We are sure there will be mixed signals again and no one will truly understand when the tapering will begin or end.
We will be watching Durable Goods orders on Tuesday. GDP on Wednesday and Jobless claims on Thursday. There is some housing data as well as consumer sentiment.
Lately there have been very few surprises and we aren’t expecting any this week. We do think that Jobless claims will come in better than the consensus at around 330,000.
Volatility will subside a little and Friday might be a fun day to watch since the Russell Index is rebalancing and that is usually a fairly active day with some unusual price movements.
The Fed has pumped hundreds of billions of dollars into the US and to some extent, the World economy. It has created a flow of funds that have travelled throughout asset classes to prime the pump of economies that desperately needed priming. This increase in cash throughout the economic system has fueled: a four-year bull market, A recovery in the housing sector, an increase in car sales and helped lower the unemployment rate by over a percentage point. This liquidity is firmly in the system and it is being used. Credit, which was a major problem during and just after the financial crisis has eased somewhat and banks are lending. Everything QE’s 1-3 were designed to do, they did. So what’s the problem?
Simple, the markets were addicted to the idea of free flowing money and expected that money to continue to fuel a recovery and in turn a rising market. Without that money, the markets and the economy will sink back to recessionary levels.
That is nonsense.
After the weakness in the market and the slow rising panic of addicted investors is passed, we will see the market and the economy continue to improve. The money is in the system and it is working. Banks will continue expanding their lending. Companies with cash hoards will start to put it to work more vigorously and effectively and the US economy will continue to expand. Probably not as fast as we would like but three percent growth overall sure sounds a lot better than zero and don’t be surprised if we get close to there by the end of the year.
This week will be highlighted by almost every Fed Governor speaking at some point. These talks are informative for anyone who understands Fed Speak and that’s about it. We are sure there will be mixed signals again and no one will truly understand when the tapering will begin or end.
We will be watching Durable Goods orders on Tuesday. GDP on Wednesday and Jobless claims on Thursday. There is some housing data as well as consumer sentiment.
Lately there have been very few surprises and we aren’t expecting any this week. We do think that Jobless claims will come in better than the consensus at around 330,000.
Volatility will subside a little and Friday might be a fun day to watch since the Russell Index is rebalancing and that is usually a fairly active day with some unusual price movements.