Hindsight can be a beautiful thing, especially if what you see in the rearview mirror can help you avoid a wreck sometime down the road. On the trading/investment road, I have learned the rearview mirror is a helpful tool indeed. Events both good and bad always have preceding factors that point to the outcome. For example, had I known and understood the significance of the bolded statistics below back in 2006, I would have played 2007 quite differently than I did.
NEW YORK – The nation’s largest retail trade group says it expects retail sales to rise 4 percent this year, the biggest increase since 2006 … excluding automobiles, gas stations and restaurants. That increase would be higher than the past decade’s average annual growth rate of 3.1 percent and 2010’s increase of 3.7 percent. But even the 4.7 percent increase in 2006 is below the 5 percent rate that signifies a robust economy.
The information before the bolded stats above is helpful for going forward, as are the ones following. I find it quite interesting that the previous decade (2000 to 2010) was actually weak regarding consumer spending. I find it even more in interesting that retail sales in 2010 (yes, 2010) were actually better than the whole decade combined, and that the 4.7% rate in 2006 (boom year, right?) did not even reach the average for a thriving economy! Yet, in this time period, the market reached all-time highs. The implication here is that the bull market from 2004 to 2007 was ethereal, a lot of smoke surrounding hidden mirrors, “a tale … full of sound and fury signifying nothing …” OMG, if I had known then what I know now …
U.S. core consumer prices rose at their quickest pace in more than a year in January, but the increase was not strong enough to suggest a troubling build-up in inflation pressures… The rise suggests the disinflationary trend in core inflation has bottomed.
Now, looking forward, the expected rise in retail sales for 2011 is good news, as is the last sentence in the excerpt above. The two in tandem suggest a synergy that could boost the economic recovery more than most analysts believe for 2011, and the prime beneficiary could be the market. Imagine this scenario – as the Fed becomes convinced that the economy is on sound footing and that inflation has replaced deflation (or stagflation), it raises interest rates slightly, announces that QE3 is dead, and it begins withdrawing liquidity from the market. As this process unfolds, the upward pressure on commodities from QE2 releases and the markets fall back, once again shaped by the fundamentals of supply and demand. Of course, this would not totally relieve inflation, but it would certainly temper it, which would provide a period of growth accompanied by a solid increase in discretionary spending – the less one spends on the essentials (housing, energy, and food), the more money one has to spend on everything else. Simple, right?
Now that I know what I know, looking in the rearview mirror is so much more meaningful. For one thing, I can see real economic growth does not come from excessive tax cuts or government created asset bubbles (real estate and bundled derivatives). No, real growth comes when real people have real jobs that pay real wages, not when magicians smoke up a room full of mirrors.
Trade in the day – Invest in your life
