Earthside Comments: There is always a disconnect between the daily economic well-being of average working people and the stock market. The big excitment on the business pages of today's newspapers over the Dow topping 13,000 is just the latest hype.
So, what. Even if you have stocks in your 401K and/or other retirement instruments, how does the rise in the Dow change anything you are doing today or tomorrow? Unless your particular stocks have gone up and you can sell now ... then it doesn't have any effect on anything except maybe your attitude.
Here is the real economic picture for most Americans -- the housing bubble is deflating (no more refinances to pay the bills), more jobs are being outsourced, more illegal immigrants are putting downward pressure on wages, gasoline is headed to over $3.00 a gallon, the mirage of ethonal production is raising the price of food ... understand? In other words, income down, prices up.
So, adjust your personal finances as necessary to account for the prospect of much more inflation -- that's our advice.
Link: M3 Growth Fuels the US Stock Market | Chuck Butler/Daily Pfennig
... As I said yesterday, the US economy and the economies of Europe and Asia are moving in opposite directions. While the central banks of Europe and Asia continue to push rates up to combat inflation in their growing economies, the FOMC is having to just 'hold the line' with interest rates as the US economy isn't able to withstand another interest rate increase.
The Beige Book which was released yesterday afternoon confirmed "only modest or moderate" economic growth in the US economy. The report by the Fed's district banks showed a "slow pace in manufacturing in most areas, while the housing market continued to restrain the expansion". Expansion?!? In their dreams! The US economy is hardly expanding and is more likely contracting as growth slows, confidence falls, inflation rises, and unemployment is stagnant. No, I would hardly label the US economy as expanding.
So if the US economy is slowing down so much why is the stock market hitting record highs? The answer to that question can be found in the M3 numbers. You may or may not remember M3, which the Fed conveniently quit publishing back in March of 2006. M3 is the broadest measure of money supply and is used by the European Central Bank and several other central banks as one of their key measures of inflation. Well the Fed may have quit publishing the M3 data, but they continue to publish all the data that goes into the calculation and our friends over at Shadow Government Statistics have a chart which demonstrates just why the Fed decided to keep M3 under wraps. A look at the chart shows the Fed is pumping up broad money supply at an astounding rate of 11.8% per year! All of this rapid money supply growth is reflected in an increase in equity prices. The stock market needs to rise just to keep pace with all of this newly-created money. As long as the Fed doesn't rock the boat with another rate hike or by turning off the spigot of money flowing into the markets, the equity markets will continue to run. ...
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