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  • Why Bad Economic News is Good for Stocks [Edit or Delete]0 comments
    Nov 14, 2011 3:47 PM
    It is optimal for the stock market and economy to have a combination of good & bad economic news, but not only 'good' economic news. Economic data affects monetary policy and having bearish economic data can promote more aggressive stimulative action, even if other data points remain robust. Policy makers can use the less important 'bad' data to justify inflationary policy such as tax cuts, rate cuts, increased defense spending, etc. 

    The most important economic data is productivity, exports, personal savings rate, profits & earnings, and consumer spending. These numbers continue to blow past estimates quarter after quarter, creating a backdrop for a long term bullish environment for equities, but you will never read this on the blogs which are obsessed with the negative yet unimportant economic data points. These unimportant data points include unemployment, housing, national debt, trade deficit, falling 10 yr. yields, consumer confidence, manufacturing, wealth disparity, and jobless claims. It's good for stocks that home prices keep falling or for unemployment to remain high because it gives Bernanke a great excuse to leave rates at 0% forever. Pessimistic, dour consumers tend to be more productive at work for fear of being fired, in addition to maintaining a high level of personal consumption.

    These negative data points are bullish in the context of engendering 'asset inflationary' policy like tax cuts and quantitative easing.

    Let's look at 10 year yields. They are falling, but does this foreshadow a deep deflationary recession? No way! How about 9% unemployment and home prices at record lows? Surely, this will have to hurt consumer spending. Nope, not  happening. Consumers keep maxing out the credit card quarter after quarter. Consumerism, globalism, exports, productivity is still here to stay. Those nosebleed web 2.0 valuations are NOT a bubble, and are sustainable in the long term. Record wealth disparity is suitable, too. There's not going to be a mass deleveraging. No crisis. No double dip. No problems with the economy. Healthcare, food, gas, insurance & education prices are on an unstoppable trajectory higher, and this is great for stocks, great for the economy. No amount of whining and fear mongering by the liberals will reverse this economic boom we're presently in, or scare consumers into saving. Dow 14,000 end of year.
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