Today is Friday July 24 and it is 6am.
For the past several months, I have been discussing the difference
between the economy and the market. Many clients are telling me they
can’t understand why the market continues its steady recovery and
improvement while the economy is seemingly in the tank. The answer is
fairly simple. The market is a leading indicator for the economy. The
market is forecasting economic activity 6 to 8 months forward. As a trend
follower, all major averages are trading above their respective short,
intermediate and long term trend lines. This is very encouraging from a
technical trend standpoint.
But why is the market forecasting an economic recovery? The following
chart sums it up fairly well. Global real money supply has exploded. And
we all know that money has to go somewhere. A good bit of it will go into
the market. The markets love liquidity. The market will have nowhere but to
go up as asset prices are inevitably inflated. In other words, “Don’t fight
Now let’s look at S&P 500 stock results through the start of July and
ranked according to company size. It’s clear from the YTD returns ranked
by company size that Bigger is Better.
This one chart demonstrates the value of excellent stock selection.
On a final note, I wanted to mention some new recent developments in
China. Social media out of China is reporting that concerns about certain
Chinese Banks caused depositors to make a run on those banks in
northern Hebei province. Local regulators had to publicly vouch for the
soundness of its lenders as the police halted the run. Confidence in the
$43 trillion banking system may be eroding among the nations’ more than
1 billion account holders. Retail customers are now required to pre-report
any large withdrawals over $14000. Restrictions of this sort would likely
not be imposed if there were no truth to the underlying concerns about the
banking system itself.
As always, thanks to all for their continued support. Despite the challenges
that this year has presented, I am happy to report that things are
progressing very nicely here. I hope everyone is staying safe.