Perhaps you think it's impossible to score another 1,000% gain off this "tech titan" stock. Think again. An unusual strategy lets you virtually "recreate" gains off the biggest companies you thought had come and gone. CLICK HERE to see how it works.
Economic Data: What Can You Believe?
Ryan Cole, The Investment U Research Team
Today, we’ve got access to an unprecedented amount of economic data.
Much like we have a better standard of living today than the richest Americans did 200 years ago, so too, everyone now has more info about the economy than the President did 80 years ago.
That’s not always a good thing.
Under this avalanche of data, it is easy to get lost. Rarely will all economic data point in the same direction – and divining what’s really going on often comes down more to belief than analysis.
Why? Every analyst can find data to back up their beliefs, and that’s exactly what most do.
Not me. Today, we’re going to start a series that goes inside the data, fights through the confusion and conflicting signals, and comes out with an economic truth on the other side.
By the time you’re done reading this series, you’ll know more about what the economy is doing than just about anyone else you’ll meet.
So, let’s begin. And we’ll start with that most controversial of topics, inflation.
Are We Inflating, or Deflating?
Nothing is more frustrating than this debate. It changes everything – and it seems like no one has any idea what’s really going on. So, let’s start with the basics.
Inflation is dependent on two factors – the amount of money out there, and the velocity of that money. That is, if we increase the amount of money in circulation, then each individual dollar loses value. Likewise, if we increase the speed with which money changes hands, that’s a virtual way to increase the amount of money out there – a dollar spent twice in a day acts like two dollars.
So, to know whether we face inflation, we just have to figure out what’s happening to these two variables. Let’s start with the velocity of money.
Stuck in Neutral
Put simply, money isn’t moving these days.
While the credit crisis has thawed somewhat – and banks are at least willing to lend to other banks again – most individuals still can’t get loans. Applying for a mortgage is like pulling teeth, and trying to get a loan to start up a business is so difficult, it’s ridiculous to even try.
Banks aren’t lending money, they’re hoarding it.
The same is true for individuals. During the peak of the bubble years, the average U.S. consumer was actually spending more money than he earned. He had a negative savings rate.
Today, the average U.S. citizen is saving 5% of his salary – or more. Most economists think the next time we measure savings, we’ll get a number closer to 10%.
And again, banks aren’t lending like they used to. Rather than take that savings account and using it to make loans, banks are holding onto it, effectively taking the money out of circulation.
In other words, the velocity of money is much lower than normal – and that’s a deflationary pressure, not inflationary.
How Much Money Is Out There?
This one should be easier – with all the money being created and spent in stimulus, with quantitative easing and hundreds of billions of dollars in treasuries being sold into the system every few weeks, surely the money supply is increasing, right?
Not so fast. It’s true that the government is printing cash at an alarming rate, and has probably added over $1 trillion this year alone – and that number might be closer to $2 trillion, maybe $4 trillion, even, when the smoke clears.
Problem is, that’s a drop in the bucket. No one knows the exact figures, but the crash that ended 2008 erased tens of trillions of dollars. We’ve gained some of that back over the latest rally… but we’re still way in the hole.
So, while we are printing money at an alarming rate, the truth is we’ve lost much much more than that. Today, there are less dollars in existence, not more.
And, again, that savings rate is putting an expanding piece of the pie on the sidelines.
So, Inflation or Deflation?
Deflation. Your own experience confirms this – everywhere you look, there are deals, sales… most things are cheaper today than they were a year ago.
Today, there is less money out there, and it’s moving more slowly. For the time being, at least, we’re looking at a deflationary environment.
Keep alert though – things could change in a hurry. If the banks start lending money again… in the stock market makes back much of what it lost… then the liquidity currently flooding the market could quickly switch us to double-digit inflation. For now, though, deflation rules the day.
However, the markets have luckily over-reacted to the possibility of inflation.
That means the dollar is cheap right now. I recommend buying the Powershares DB US Dollar Index Bullish (NYSE:UUP). Even if the environment suddenly turns inflationary… the same thing will be true for all the other currencies the dollar is measured against. The dollar is near it’s mid-term low, and this is a great time to jump into it.
Good investing,
Ryan Cole
P.S. If you’re looking for more companies that dominate their industries, consider taking a look at The White Cap Report – It targets the market’s most aggressive growth companies. You can find out more here.
- The Fed Gets Zero for Zero
- Look Out for Lots of New Cheap Debt
- The Road Map to Higher Interest Rates: Seven Signs of the End of Free Money
|
The Company Set to Dominate a $60 Billion-a-Year Market
$60 billion is spent on cancer treatment in the U.S. - each year. And one company is poised to receive the lion's share of it.
The medical director at the Alta Bates Comprehensive Cancer Center says, "...possibly a third of our cancer patient population will soon be undergoing this [company's] treatment."
Another doctor at the University of Texas MD Anderson Cancer Center says he intends to treat over 1,000 patients a year with this technology.
Here's how you can claim your stake in the company before this cash infusion sends shares soaring.
Comments
**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.Check out our selection of daily Investment Research:
 |
 |
Investment U RSS Feed