Looking for Answers…

Looking for Answers…

That is the dilemma of the market after last Friday.

Why is the economy doing better than many economists have expected. I don’t know for sure but I will throw out a few things to ponder.

  1. Today’s US economy’s GDP is made up of about 30 % goods production and sales, and 70 % service revenue.
  2. Tied to the above info, Interest rates would seem to have more impact on goods growth than service growth as service costs are largely funded out of cash flow or income, while goods inventory financing during the manufacturing and sales process tend to be interest rate sensitive.
  3. The core belief in the cause of the 2022 inflation has been that it is embedded, caused by 11 years of an expansive FED, and will be around for a long time.
  4. While the long term factors are certainly real and portend for big problems down the road, what if the current inflation is really about an overindulgent monetary response by the FED and the government to Covid along with the response of energy and food prices due to the Ukrainian War. Those factors seem to have numbers headed downward.
  5. All this could mean that the FED was correct, all this current inflation is transitory at the moment.

As to markets this week.  Traders and investors are being a bit timid, still buying the safe stuff or getting out of short positions.  That means stocks poised for the future and the New Economy are still sitting around for a catalyst.

So, Let’s wait and see what the CPI and PCE numbers look like during the 2023 first quarter, and whether the House of Representatives shuts down the country.

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