Tuesday, September 21, 2010

Filtering down...

...to the mass media. This is a good article in Forbes of all places.

Here is how to do it better. First of all, forget the dozens of economic statistics, especially the ones published by the U.S. government. Many are “seasonally adjusted,” which simply means they are good for nothing. Then, several months later, they get substantially revised. How can you know what is important and what is not? Here is a guide you should copy and put on your trading computer.

Credit growth: The most important indicator is “credit growth” or lack thereof. Everything else follows. Actually, you could stop right there. However, there are two other factors to assist you, although they depend on credit growth.

Job growth: This is the most important economic factor dependent on credit growth. If there is no credit growth, then there will not be any sustainable job growth.

Consumer spending: For stock investors, the most important indicator is “consumer spending.” Consumer spending is a coincident indicator. When it declines, so does the stock market. It helped us identify the 2007 stock market top. If there is no job growth, then spending will depend on consumers who have jobs spending more. This can happen, but it can’t be sustainable. We have seen this over the past 16 months.

There you have it. Its simple. You can skip all the dozens of other economic numbers if you follow the above. That’s how I knew at the start of this year that the economy would falter. What is the economy doing now?

Credit card debt has been declining for 21 months and is now down about $150 billion dollars from its peak. Does anyone really believe that the retail sector can flourish with this shrinkage? Commercial & Industrial loans (to businesses) see no rise at all. There is no credit growth.

The latest job reports have been absolute disasters, confirming my view that the economy is doing very poorly. The theory of the “V-shaped” recovery is now being abandoned by the bulls. They are now changing their tune to “a soft patch” in the economy, just as I predicted. Some economists now mention a “square root-shaped” recovery. Soon, they will start considering a “double dip.” But that will also be the optimistic view. A “dip” infers a slight decline. However, it could be much deeper

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