muses of the moment

November 21, 2013

John Williams from shadowstats.com

Free summary from John Williams at shadowstats.com. He has the real stats.

– Watch Out for the Dollar
– October Annual Inflation: 1.0% (CPI-U), 0.8% (CPI-W), 8.5% (ShadowStats)
– Retail Sales Gain Was Statistically Insignificant; Recession Signal Remained Intact
Official Real Earnings Declined in October
– Existing Home Sales Declined for the Month; Annual Growth Slowed Markedly

Groovygirl looks at the spread between the real inflation rate, right now running around 8.5%, and the rates you can earn at the bank. Those are currently running better than recent months around 2%. Whoo-hoo! This gives a good idea about how far behind real people are falling. Someone living off of investments alone would have a hard time finding a consistant 8.5% return after taxes. (Maybe real estate cash flow) If you compare a business/company’s annual gain and the real inflation stats, it will give you a quick look to see if they are falling behind too. Business annual reports are more complicated, but it directs you to which businesses to investigate further. You can do this with tax revenue for states, counties, and cities, etc. If they are not bringing in at least 8.5% more, then they have to cut somewhere at some point.

Easy money and credit have hidden these truths since the dollar began to really fall in 2001. Once liquidity evaporates for good, it is all over. We have experienced liquidity evaporating twice in the last decade and numerous examples from other countries in the last 5 years. We know what happens. It should not be a surprise when it happens again and you have no excuse not to be prepared.

Chart of the Day is an updated inflation-adjusted DOW chart. We keep hitting that resistance level. Click here.

Groovygirl knows that everyone is excited about the stock market and “new highs”, but this chart of the day shows:

  • A clear winter cycle since around 2000 or the dot.com bust
  • A firm resistance level at around $15,000 (inflation-adjusted)
  • After taxes, you may have not made back your losses, even if you entered the market perfectly timed. Taxes are very important to consider in these times.
  • There were major swings in the stock market during the Great Depression as well. This is not unusual.
  • We are really in the middle of the long-term trading channel. We could go up, we could go down…..

The recent drops in this winter cycle were driven by bubbles popping and terrorist events. (dot.com pop, 9-11, and housing bubble pop) During a winter cycle, the market is very sensitive to outside forces. Confidence is easily and quickly lost and then regained. This is why buy and hold is not a good long-term strategy during a winter cycle. Groovygirl is not saying that you can’t make money during a winter cycle, it just isn’t the best time for a buy and hold pattern.

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