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The Rate of Inflation and the Stock Market Rally?

Stock-Markets / Stock Index Trading Sep 04, 2009 - 03:11 AM GMT

By: Andrew_Abraham

Stock-Markets

The million dollar question what is real? The rate of inflation or a new stock market rally?

We are bombarded on CNBC or Bloomberg with one speaker after another stating… No INFLATION! The Rate of Inflation is nothing…or the average inflation will be minus x %. At the same time we hear speakers after speakers discuss green shoots …that the recession is over etc.


As a trend follower and a commodity trading advisor I think this is very interesting to hear. All of the guests on CNBC and Bloomberg forgot the point that Gold is knocking on the door of $1,000 ….that Sugar is at a multi year high..Almost doubling from this years lows… Crude oil has doubled and even lead has doubled… but there is no inflation.

If there is no inflation what do you call this?

On top of ” this non existent Rate of Inflation” we have a real stock market rally. The fact is the stock market has rallied off the lows..And yes some trend followers( without opinions) have caught this move but is it for real? What has really improved from last year? Is it possible that the US economy in the most perilous position since the Great Depression… or is potentially worse as maybe since the Civil War? Without being too fundamental…bear markets rarely, if ever, bottom at 13 times earnings, where the S&P 500 stood on March 9. That is approximately twice as rich as the multiples you can expect to see at the ultimate bottom if history is any guide. This is more like 1930 awaiting the next big drop.

Another fun example…the stock market has yielded an average dividend yield of 4.4% and currently the S&P 500 yields just 2%. Using logic (in which too many have forgotten) all one has to do is look at the current real estate market. Billions if not trillions have been lost in real estate and have the banks that have reported profits really realized these losses? How many mortgages are under water? How many letters filled with keys are banks receiving from both home owners and commercial real estate owners? Put into the equation all the credit card debt? Sure people that are unemployed who are not paying their mortgages will pay their credit cards. The fact is …People can have opinions but they are only entitled to the FACTS.

The fact is inflation is picking up its wealth destroying head as well as it is very questionable how strong this stock market rally really is… (Is it a Stimulus rally with Hyperinflation following?). The fact is we can speculate and discuss all of these issues.

Regardless commodity trading advisors and trend followers do not care about any of this. If the markets go up…they buy… They are not Sugar experts… nor are they gold bugs…or perma bears. Those that trade the commodity markets successfully have no opinions.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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