Another Record Overvalued High
Another day on the street with little news and another record high for the major averages that become more painfully overvalued as the days go by.
The big news pending is of course the Fed’s latest decision on interest rates due next Wednesday, as has been the case for a while now the official odds of a ¼% increase stands at nearly 100% for the data dependent Fed as they have been quick to tell everyone regularly since mid 2013.
A hard and detailed look at the data, not just the headlines presented for general public consumptions shows that of the data the Fed says it needs to justify higher interest rates very little of it actually meets the stated requirements. First and foremost, of course is unemployment and at just 4.6% it is well below the Fed’s desired target of 5%. Had it gotten there through job creation we would have a strong basis for higher interest rates, yet the 4.6% unemployment rate is compliments of people giving up looking for work, so they are no longer counted, something that has been documented time and again and featured strongly in the latest jobs report. Moving to the official inflation data such as the Consumer Price Index or CPI, 1.6% annualized at last count and the oft cited Fed favorite PCE or Personal Consumption Expenditures Index, 1.26% annualized at last count and again it’s very difficult to find values over 2%. In fact data from far and wide including economic growth, trade, labor market conditions, personal spending, final demand, corporate profits and revenues, the list goes on and on. All show that the economy is at best muddling along able to muster just modest Gross Domestic Product or GDP growth, just 1.6% annualized over the last 4 quarters despite emergency level interest rates and trillions in stimulus. With the recent market driven spike in interest rates already pressuring the cheap credit dependent sectors of the economy I’m reminded of the famous Dirty Harry quote “are you feeling lucky punk”. Personally, I think the odds aren’t anywhere close to the official figures of nearly 100%, but will find out on Wednesday.