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Oz: The Great and Powerful” Perfect Analogy of the Fed

Politics / US Federal Reserve Bank Mar 18, 2013 - 07:08 PM GMT

By: Profit_Confidential

Politics

Mitchell Clark writes: “Oz: The Great and Powerful” is The Walt Disney Company’s (NYSE/DIS) latest flick about a character named Oscar Diggs who is a con artist. He finds himself in the Land of Oz, where he is a magician that’s ethically challenged. It’s quite the analogy to what’s happening today in the U.S. economy.


The U.S. retail sales report showed a big gain in February, making a big jump over the previous five months. Sales of “Lamborghinis” in the U.S. alone grew a whopping 50% in 2012. Many corporations, like Paris-based luxury goods maker LVMH Moet Hennessey – Louis Vuitton SA, are hitting record highs on the stock market for the third year in a row; Rolls-Royce Holdings plc’s annual sales broke another record, the highest in the company’s 108-year history.

On the back of Main Street fundamentals, corporations and the stock market have done an incredible job recovering since the financial crisis and recession. The big banks have had exceptional access to super cheap cash, making mortgage spreads nice and fat. Big banks are doing great on the stock market right now.

Everything is skewed. Countless U.S. corporations are doing well (as we’ve been looking at), but countless corporations aren’t growing at all. Economic conditions are vastly different in many industries. Retail sales seemed decent, but many retailers are dropping on the stock market. And many brand-name retail manufacturers are struggling, too.

Monetary stimulus has been a boon to those who don’t need to worry about gas prices. The Federal Reserve has performed its job perfectly. The stock market is up. Cash is cheap.

The strength in February retail sales was mostly just an expression of the price inflation in the economy. The numbers are adjusted for seasonal variables, but not changes in prices. We all know there’s price inflation, even if government data say it’s tame.

The stock market is moving now on relative news. We’ve had some more fairly positive news, and the stock market is trending higher on that. But none of this is helping average incomes. Corporations will continue to make minimal new investments.

Be very, very wary about headline numbers and their relative changes. These are only surveys, and they don’t tell the whole story. In the stock market, it’s unwise to invest based on surveys.

The only thing that matters is what corporations say about their businesses and how your savings are structured to deal with the risk. It’s tough waiting for earnings results four times a year. So far, it’s looking like a pretty decent earnings season, but corporations with extensive exposure to Europe won’t fair as well.

Jim Rogers used to say that he just waited until a particular market got to an extreme, then he went the other way; in the absence of extremes, he did nothing.

Corporations with good balance sheets, increasing dividends, and desirable products will outperform going forward. In the mid term, all stock market eventualities are possible. Frankly, I think this market can still go higher before a correction. Corporations are in much better shape now than before the financial crisis. American personal incomes are not, and price inflation is creeping in. This is why you shouldn’t believe the numbers; they are an estimated reflection—not reality.

Source - http://www.profitconfidential.com/stock-market/oz-the-great-and-powerful-perfect-analogy-of-the-fed/

By Mitchell Clark, B.Comm. for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2013 Copyright Profit Confidential - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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