ieddyi> Good question.....
IddeyI> thanks for asking my opinion
Excellent question. The money supply has declined but it reflects the weakness of the lower and middle incomes rather than the rich folks who are continuing to power the rally in stocks.....
Let me summarize my views.
The stock market has been strong because it has been given special status by the policy makers; record low rates of taxes on capital gains and dividends combined with the low rates of returns on money market funds. These policy efforts have been a huge supporting element keeping the money flow positive into stocks. The rich are buying with both hands.
Further, profits have been rising making stocks attractive while yields on long-term bonds have been steady. Profits have been rising for two reasons: the falling dollar and the massive cost cutting efforts on employee. There is no question the rich have moved their money into stocks in the last 12 months due to policy.
What would cause the rich to stop this flow, and to panic and sell?
Recently, the threat of rising rates is beginning to hamper that, and we saw a mini-panic when the Fed changed their timing from considerable to patient this past week (patient is now measured in economic terms rather than a perpetual guarantee), and a huge decline and relief rally came in last week to testify to this; at first concern that labor markets would boom and the Fed would jack up rates; the relief on the back of the poor labor report; yet in my view the risk is still to the downside on rates and the labor markets and
I believe the rich will panic on the fear of recession in the coming months.
Why so?
The real wages of most Americans are falling even as the inflation rate is rising. Wage growth has fallen from 4% to 1%. Inflation is moving up at 1.9% rates now while wages are stagnate (1% growth if that) even falling due to global conditions. Commodity prices are ramping up faster than wages; and the average wage and salary gain is now lower than inflation in fact in the last month wages and salaries fell.. Low interest rates will no longer stimulate economic growth if wages fall, for a consumer tapped out on maximum debt levels as wages stagnate and purchasing power declines may decide he is tapped out. Only wage and salary growth can stimulate us further at this point. Bulls are counting on the next round of tax cuts stimulating spending this spring. Yet, if the jobs market does not gain momentum and soon, the savings rates of most Americans could rise rather than continue in the deficit spending mode. This tax cut could be saved rather than spent. That will bring the next leg down in the recession caused by a spending collapse. Once the rich belief the recovery is over, not coming, and a recession is trickling up rather than recovery trickling down, and once they see they are the bagholders for the credit bubble due to massive defaults and the need to collect taxes to pay for rising deficits, they will panic and sell IMHO. The same record low tax rates could encourage selling.
I would watch the home sales market for an indicator. In the last month home sales declined some 5% while starts and permits spiked. If that continues, and a glut develops, and housing prices start to decline, the next recession will begin as consumer’s (wage earners) cut back on spending no longer able to power the spending forward as policy makers desire despite record low rates.
News 
Market Data 
Discover 
AI
