There are several factors currently affecting the stock market. First is the U.S. national savings program. According to the Federal Reserve, the U.S. has the lowest rate of savings than any other leading industrial nation. Obviously, the Fed excludes all other savings vehicles with the exception treasury notes and bonds. FOMC Chairman Alan Greenspan is on record for opting to privatize Social Security. Of course, Soc. Sec. Accounts would be open to treasury mutual funds. China will no longer deem it necessary to buy U.S. treasury notes (in an effort to sanitize their currency dealings with the U.S.) once they unpeg their yuan from the dollar. In my opinion, this is the most important issue left to be resolved before the U.S. stock market is able to feel secure regarding future earnings over the next couple of years. However, if not Soc Sec. reform, then the other proposed alternative to a national savings program will be the new series E.E. bonds.
Second is the resurgence of real estate buying due to the return of twelve month low interest rates. Investors are investing their money in what they feel they know better than stocks-real estate. Third is rising interest rates. Interest rates will negatively affect stock market earnings if they go beyond 4.5 percent. Most analysts believe the Fed will not raise their key interest rate beyond 4.25 percent. This is considered a balance or neutral point. Fourth is productivity-the hourly cost of labor it takes to produce a unit of goods-is moving lower. This is inflationary because it forces prices to move higher or profits to fall. Fifth is the Chinese are expected to take some action in allowing their yuan to increase in value in the near future. This will affect China’s bottom line, depending on how high the yuan is allowed to increase in value. A more valued yuan will also affect dollar value.
Six is the rising dollar value will soon lower the boom on the U.S.’s emerging export market and summer tourist trade. Seven is the global crude refining squeeze. There is a shortage of global crude refineries. There will not be enough refining space to refine oil, no matter the amount of crude reserves available. This, in effect, will keep the price of oil over $40 per barrel. Eight is MZM’s money supply, according to the last report, was below zero. This is not good for big ticket item spending prospects. Last, but not least, factory jobs have fallen off. However, they only represent eleven percent of our nation’s GDP. This means that only a three to four percent job-loss is currently affecting manufacturing and productivity.
Keep your eye on these key issues. The stock market will swoon if too many of them turn negative. Suffice it to say; just the opposite will happen if several of these issues turn positive. Stay Tuned!
Kenneth Coleman
