| |
| |
|
Investing Information |
|
|
|
The Perfect Economy?
The U.S. economic data reported this week showed strong output growth with tame inflation. Industrial Production expanded at about 1% in June, three times greater than expected, while both the June Consumer and Producer Price Indices were unchanged. Also, the June Capacity Utilization rate rose to 80.0%, and the June Unemployment Rate fell to 5.0%. The June data generally show there is neither strain nor slack in the U.S. economy. Therefore, the U.S. economy is expanding at an optimal rate. It seems, the "Goldilocks" economy (of neither too hot nor too cold) may continue for several months. The longer-term trend has shown slowing output growth with rising inflation (i.e. stagflation). In 2003 and 2004, the U.S. economy expanded at about 4.0% real growth, while inflation rose from 1.6% to about 3.0%. Sustainable growth, which is optimal, is 2.7% real growth. So far in 2005, output growth has slowed to just above 3.0% real growth, while inflation has stabilized or fallen somewhat. U.S. output growth and inflation have been quite impressive, over the past few years, after the bubble boom in the late '90s (where resources were under great strain) and the shallow recession in 2001 (during of a massive "Creative-Destruction" process, which made the U.S. economy more efficient). The U.S. economy owes a great debt (no pun intended) to the skill of the U.S. Federal Reserve (Greenspan & Company) for smoothing-out the business cycle, and to a lesser extent the (continuing) stimulative fiscal policies of the Bush Administration. Future inflation is both actual and expected inflation. The U.S. Federal Reserve has done a masterful job lowering inflation expectations, through a combination of actual tightening and "jawboning." However, to keep future inflation in check, the Fed may need to tighten (at a "measured pace") at each FOMC meeting this year, because monetary policy is still quite accommodative, and the lags in monetary policy force the Fed to work in the future economy. NAIRU (the Non-Accelerating Inflation Rate of Unemployment) is estimated to be 5.0%, which is where the Unemployment Rate fell to last month. Also, the Capacity Utilization Rate rose to 80%, and over 80% is an indication of rising or accelerating inflation. Moreover, the output gap (between potential and actual output) has closed, taking the slack out of the economy. So, the U.S. economy is "perfect." To maintain the optimal growth rate, the Fed will need to correctly anticipate the future economy and make the appropriate adjustments. The Fed has done an excellent job bringing the economy up to "perfection." However, it may need to continue tightening until monetary policy reaches a neutral stance, and then tighten further to preempt inflation and maintain price stability. Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998. Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past five years.
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
Investigate Before You Invest "Through wisdom is a house built. And by understanding it is established. Investing 101: Risk Terminology - BETA About thirty years ago, statisticians armed with all of their statistical theories began to confront the financial markets. A handful of useful tools emerged that the average investor should be familiar with when they look to purchase stocks. Diversify! The best way to avoid being hit hard by a stock market crash or another Enron/Worldcom fiasco is to make sure you don't put all your eggs in one basket. Diversification helps ensure steady growth of your net worth as you accumulate more assets. Why You Need To Buy and Sell Gold Coins (Part 6) Pre-1933 Gold Outperforms Today's Gold Bullion.. Basic Options Terms Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. Secret Stock Options Trading Strategies the Experts Don`t Want You to Know To understand stock options, we need to look at Webster’s Dictionary’s definition of the word strategy.Webster’s Dictionary defines the term strategy as1. Get Wealthy With the Rule of 72 When it comes time to retire how many people would like to have a nest egg that is 2 or 3 or even 4 times larger than what they have? With an answer so obvious allow me to explain how you can make it happen for yourself.First we'll explain the Rule of 72. Have Analysts Gotten Honest? It caught my attention when I heard an analyst on a popular financial news program tell investors to sell a stock because too many analysts liked the company, citing the fact that there were no sell ratings.It seemed perfectly logical to me that analysts wouldn't be telling investors to sell 3M (MMM), which has one of the most consistent positive earnings records in the history of the stock markets. Why You Need To Buy and Sell Gold Coins (Part 5) Grading coinsThe condition of a coin is commonly summarized by a grade. Because the value of collectible coins often varies dramatically with grade and overly generous grading is not uncommon, reasonable grading proficiency is an important skill for collectors. Selecting Rules for Investing and Trading There are three important differences between investing and trading. Overlooking them can lead to confusion. Finding the Perfect Company The perfect company - it's the holy grail of the investment world. The company that will make its initial investment hundreds of times over. Critical Options Investing Tip When Trading Naked Calls and Puts An option is a derivative trading product that is best used by investors as a hedging tool providing investing profit protection and profit enhancement. Although it is a powerful risk management tool, it can also be used effectively as a stand-alone trading vehicle. Approaches to Investing Here is a small summary of the three major approaches to investing:1. Fundamental AnalysisTruly superior companies exist, are sometimes undervalued by markets, and can be identified by mostly financial research. When Its Too Late to Save for Retirement You are 55 years old (or somewhere around there) and your company is going to force you to retire at 65. You have $35,000 saved in your 401K and that's all. Trading Is Not Rocket Science! Despite what some people may lead you to believe; day trading, swing trading and trend trading is not anywhere as difficult as they would like you to think. It really boils down to two key components. Delist My Corporation Please It use to be said that once a company was de-listed from the NASDAQ it was the kiss of death, not so any more. With Sarbanes Oxley and all the insane reporting requirements it might save your company from incessant lawsuits from investors and the government regulators who are out to destroy free enterprise. 401(k) Plans I've been in and interested in the stock market so long (one year shy of forty years) I can remember when the mutual fund pages in my home town paper were just one page! Now it looks like there are more mutual funds then there are stocks listed on the New York stock exchange.I wonder how many billions of investor dollars are supporting these funds. Building The Foundation For Wealth You wouldn't build your home on anything less than a solid foundation. Similarly, you can't build wealth and financial independence without first having sound foundational principles to build upon. Seecrets on Investment: Tired of Making Huge Losses in the Stock Market - Part 1 Over 80% of all individual investors lose money in any given span of ten years. This figure is likely to be higher, given most people's reluctance to reveal their losses. Stocks, Oil, and Bonds A barrel of oil bounced to over $60 Thu, which triggered a steep sell-off in the stock market Thu and Fri, although oil pulled-back to around $59 a barrel, and closed at $59.84 a barrel Fri.
|
| home | site map |
| © 2006 |
