If you listen to the media, the recent reports on Retail Sales and Personal Income would tempt you to run to a cave somewhere deep in the woods. The talk is about weakness in retail sales, personal income, a high stock market which is not supported by economic fundamentals and terror abroad with potential conflict with Russia and ISIS. The often asked question is, ‘What is holding this market up?’ Many believe it is simply that the Fed has made money so cheap(meaning low rates) that it has no where to go but into stocks. Once rates rise they say the markets will collapse. One recent media guest has had extensive exposure with his expectations for a 50%-60% collapse in stock prices the next 18mos. The actual economic data is quite good historically. At record highs!!!
My opinion, Â is that fundamentals are operating to support the current value of stocks. The fundamentals of which I speak are there for all to see. I only show two of these today, i.e. Real Retails and Food Services Sales and Real Disposable Personal Income-see the trends in the charts below. Income and spending are basic to economic activity and look quite healthy and at all time highs currently. In the past this has always supported higher stock prices! I do not see why today is any different.
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Also, I will repeat my strongly held belief that the Fed keeping longer term rates low has hurt the economy by keeping credit spreads narrow. With a higher level of regulatory cost to lenders, mtg lending at 4.2% actually prevents the typical mortgage and commercial lending we have seen in the past. There is not sufficient spread from the cost of funds to cover lending costs to the average borrower. Net-net is that lending is going to those who really have plenty of assets where borrowing is simply a finance option but not the only option. Lending is going much more to the wealthy and not to the rest of the population. This results in many of the things we are hearing about so frequently concerning income equality.
