Saturday, February 7, 2015

"Strong" U.S. Economy

The U.S. economy is making jobs, and some think wages are set to rise. The rest of the world seems to be having problems. Europe is still having problems, but the latest moves by the ECB seem to have at least temporarily changed the investor outlook on the region. I try to anticipate the money flows when considering a strategic outlook. The recent move in the Eurozone to more monetary stimulus by the ECB, and the market reaction to the Greek situation, (a dismissive reaction) leads me to believe that the flows of money will move toward Europe and away from the U.S., specifically out of U.S. Treasury bonds, which have been a save haven and have caused much head scratching as to why interest rates kept going lower despite the apparently improving U.S. economy. I found confirmation of my suspicions regarding money flows Here.

If money continues to flow out of US treasuries and into the lagging economies interest rates will rise of their own accord in the U.S., just as they have continued to decline of their own accord even after the efforts by the Federal Reserve to keep them low were discontinued. The U.S. dollar has seen a run of strength that has been historic, oil has plummeted in a historic fashion due to oversupply and lack of demand from China. And the U.S. economy has not improved for the exporters due to the strength of the dollar.

My thought is this. What if the worlds central banks have created so much money over the last decades with their stimulus programs and easy money policies, and that money has made it's way through the capitalist mechanisms and has been concentrated in fewer and fewer hands who use the money in a rentier fashion, meaning they don't take chances with the money, they don't invest in production but rent the money out to the highest bidder, and the price of money declines as more and more is concentrated in fewer hands and all want to lend safely. The "chasing yield" phenomenon of the last years. What if the central banks have lost control of the system? Each central bank wants to control their own destiny, but seem to be buffeted by the flows of money moving around the world in search of the best deal. And the concentration of money at the top, and the lack of wage power at the middle and bottom of the socio-economic pyramid contributes to a lack of demand for actual goods.

 Combined with technology making the means of production more efficient, "efficiency" nearly always meaning "less labor cost" and we have a system that is all about money. The system is very efficient at making money and very efficient at weeding out the losers. This continues the concentration of money in a global economy.

Global is the key phrase. The flow has been to the U.S. lately. The flow will change. The rise in the dollar makes the U.S. less competitive on the world stage. And competition is all about exports and making things the world wants to buy and is able to buy. Our balance of payments is getting worse. The country is living on debt again.  It seems that the powers at the top, (and I don't mean politicians, they are just the product of the system we are in) want to stimulate the system by increasing debt at the bottom, so as to stimulate demand for goods, and the money created ends up as profits for the multinational corporations.

 Leaving money in the hands of consumers is one reason for the decades long war on governments. It plays well to main street but the net effect is a hollowed out infrastructure, and a populace deep in debt, including their government.

 This latest pick up in the U.S. economy may be only a temporary phenomenon due to the lack of safety in the rest of the economic world. The money will go where the profits are, and the profits won't be in the U.S. if wages rise, and our currency continues to rise. Actually, if the flows move to the rest of the world the US Dollar should get weak again, oil will rise, interest rates in the U.S. will rise.......
That may be a game changer for jobs. And the cycle will repeat.

For now in the stock averages we may move sideways. The public is feeling good and the economy seems to be improving and these are the signs the public looks for to get involved with investing. Always "value" investors, they wait until all the signs are right. And things always look the best after the easy money has been made. We'll see. I think the public may buy the top, as the momentum shifts overseas.


I/ve been sidelined due to a pesky virus, but improving.

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