Shocking Truth Revealed! Market Discovers US Economy Growing, Inflation Low.

Shocking Truth Revealed! Market Discovers US Economy Growing, Inflation Low.

July 14, 2005

NASA was humbled today when the US stock market lifted off faster than their missile launch. The cause? Wall Street has discovered, once again, that the US economy is stronger than dirt, that it is growing strongly, that inflation is low, and that in spite of recent warnings the world is not going to end just yet.

I will write more on this later, but for now a few factoids to chew on:

1. Today’s June CPI report (+0.1% in June, +2.5% over year ago) is OK. Translation, no big interest rate increases coming.

2. Today’s June Real Earnings Report (average weekly earnings rose by 0.2% from May, 3.0% from year ago) is OK too. Incomes are growing.

3. Today’s May Retail sales (+1.7% from April, +9.6% from year ago, are better than OK. Even excuding automobiles–remember the price cuts, they are giving away cars now–retail sales were +0.7% from April and +8.3% from May 2004).

4. Yesterday, the May trade report showed a smaller deficit than people anticipated.

5. Analysts are revising their Q2 profit estimates up, especially for small companies.

6. Yesterday, the White House announced this year’s budget deficit will be about $100B smaller than they thought. Big increase in tax collections.

More growth, more profits, less inflation, less interest rate pressure. Shocking! Stock prices are going up.

Thing is, unless you just like to watch the green ink run across the screen you have to get your bets on the table for this sort of thing before the game begins if you want to make money.

My best two investments lately have been the dividend bet (DVY), and the small cap bet (IWM). DVY is $63.70 today, up from about $56 last August, and you get a 3% dividend yield to boot. And IWM, at $66.50, is up about 20% in the past two months (I bought a whack of out-of-the-money August 65 call options at $0.50 in April. Last trade today was at $2.80).

Don’t bet against growth at this time.


John Rutledge

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