The Tech Bubble and the Economic Waiting Game

Tech Frenzy

Recently we have seen a frenzy of buying in Tech Stocks, the so called FANG type stocks (Facebook, Apple, Netflicks, Google, Amazon).  If one steps back a bit, you might wonder, are these good investments or are they a placeholder until the new reality in US economics shows it’s face.  This is probably even more relevant with the FED meeting again this week.

FRED Observations

The Federal Reserve Board, St Louis, puts out a lot of good basic data and analysis.  The following charts and analysis are a good starting point for looking at the real picture.

First, the issue of soft data and hard data

And then there is the issue of the trend of the Saving Rate

What should one do when uncertainty is accelerating?  The volatility indicators (the VIX)  on the market show that investors are becoming more and more complacent.  Another course for regular people is to save more, regardless of the interest rate. Below is the FRED saving rate chart since the MACRO top in the markets in 2000.

What we see here is that the savings rate accelerated during the lead up to the economic crash in late 2008, accelerated again in 2012 (chart blanked out by date caption) until the FED started QE3 to try and restart the economy again.  Again currently we are seeing subtle signs of a base in savings and a move higher as rational people are waiting to see real signs of growth.

 

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