Today is Monday June 22 and its 6am
As a trend follower, both the S&P 500 and the NASDAQ are all trading above their short, intermediate and long term trend lines. The Dow is trading above its short and intermediate term trend lines and on the verge of breaking above its long term trend line. From a technical stand point this is very encouraging.
Now let’s look at what is happening on a Macro level. Bank of America came out with a very interesting chart comparing interest rate policy to house hold spending. You can see from the chart below that since around the year 2000 (Hyper-Globalization) as the Fed started pursuing a generally very loose monetary policy, interest rates have tended toward zero over the past 20 years (brown dots).
The conventional wisdom regarding this loose Fed monetary policy was that it would be highly inflationary as households would have more money to spend and therefore push consumer prices higher (consumer price inflation). The reality however has been somewhat different. Households appear to be spending less as interest rates push lower and lower closer to zero. This would help explain why in the face of rapidly growing money supply, we have not seen consumer prices rapidly accelerate higher.
However, what we have seen with the acceleration of the money supply is an acceleration higher in asset prices like stocks. So my guess is that more of household disposable income is being directed to stocks rather than consumption (stock price inflation vs consumer price inflation). This would imply that the Fed could conceivably continue this near zero interest rate policy for as long as consumer prices don’t accelerate higher at an unreasonable rate. Consequently it is my belief that this bodes well for asset prices like stocks over then near term.
On a final note, we are working to roll out our New 2nd Opinion Service in the next month. We have seen a spike in referrals from our clients as there are many individuals that are not faring as well as we are in this current market environment. As a result, we will be formalizing this new service for our friends and family. More on this will be forthcoming.
As always thank you for your continued confidence and support!