Earlier this month, I wrote a blog entitled The Fed, The Economy, Interest Rates and Stocks, which you can re-read here: highrockcapital.ca/pauls-blog/the-fed-the-economy-interest-rates-and-stocks. Basically, I showed the Citi Economic Surprise Index vs US interest rates and stocks and something in there just doesn't make sense.
Some of you may have heard the terms for Economic data being bifurcated into "soft" and "hard". Soft being more Surveys and Indices and Hard being more empirical in nature (I like numbers...they remove emotion and don't lie, so guess which set of data I put more credence into?).
Today, I thought I would show Citi's Index of Soft and Hard US Economic data. Here it is
Yellow line - Soft Economic data
White line - Hard Economic data
What is interesting about the soft data is that, it represents emotion, feelings about the future, perceptions, etc so when it trails off, the result is that consumers and businesses (those surveyed) do not feel as positive about the future. And if neither of these groups do not feel as confident about the future, they arguably spend less. And if they spend less, the economy is not as likely to grow compared to if they were more positive. So if consumers and businesses are less confident about the future and spend less, then the government has to step in with yet more budget deficit spending to spur economic growth. The result of government (deficit) spending is - more structural debt. Do we need more government debt? I am pretty sure we have enough in every country and at all levels of government.
Is the US economy really that strong? Should the Fed really be raising rates?
I leave you to answer those questions but at High Rock we already have and are managing our portfolio risk accordingly.