Three Ways to Guage the Strength of the Economy
Unlike other metrics, these are hard to manipulate.
The problem with the stock market, GDP, or CPI is that all of these measurements can mean very little when the government is pumping money into our economy. As you may know, we used to be on the Gold Standard. The Fed couldn't introduce new money unless we had more gold to back it. This system ended under Nixon. When the Fed pumps money into our system, it causes assets to go up. An extreme example is Zimbabwe or Germany post-World War I. That's why the stats that we read about are of no use.
Did you know that the $4,500 discount from Cash for Clunkers is being used by the Department of Labor to decrease the stated amount of the average new car sold? That's one of the categories in the Consumer Price Index, along with iceberg lettuce and milk. As you can see, the Department of Labor gets to decide what is and isn't calculated. They're the boss of this metric. Not good if your future Social Security checks don't go up with the true rise of inflation. Aren't TIPS predicated upon the CPI? Yep.
Your stock portfolio and home may go back up to 2006 prices. But unfortunately, you may be using the profits to buy gas at $8 a gallon.
Metrics of the Osborne Rule
1. The first metric is the value of the dollar. It's true that other countries are printing money, just some not as fast as the US. If the dollar doesn't weaken any more than 25% from where it is today, that means we're in good shape. So if the dollar doesn't go any higher than $1.77 for the Euro, 73 for the yen, or $1.11 for the Canadian dollar, we'll be good. Governments can control their currencies in the short term, but not the long term.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter