Inflation Monitor – August 2015

Inflation Monitor Summary – Composite Ranking

inflation monitor summary


* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


Inflation Monitor – August 2015 – Introduction

The lazy days of summer are almost over. As the summer ends, the Wall Street traders and money mangers will also be going back to work. If you looked at a chart of the S&P 500 without the dates, you would not be able to tell which days were summer days and which were not. It looks like the traders have been in vacation for the entire year.

The S&P 500 has been fluctuating around 0% all year long. It is kind of refreshing to know that there is another direction other than straight up. The end of the year has a chance to be very interesting considering the speculation that the Federal Reserve will be raising rates. While I have said many times I think the Fed will lock the floating rate of 0%-.25% at .25% as a starting point, this will amount to nothing. This might even be a catalyst for the market to resume its march higher, if the Fed says that they will stop and assess the markets reaction before raising again.

The US stock market is already very overpriced according to a number of metrics, but until there is a better place for investors to put their money, it may remain expensive. The Chinese stock market has been unraveling in the past few months and this may be a catalyst to move global markets. It is too soon to tell. Keep watching Chinese markets as a sign of trouble ahead.

The rise in interest rates has cast some interesting speculation on the future movements of the stock market. I want to dispel some of the myths about the rise in interest rates. In short, historical data suggests that the stock market rises with the rising rates, but what is not explained is that the rates start rising to stop the excessive rise in the stock markets. In fact in recent history, the Fed has raised interest rates until the stock market slows. Inevitably the Fed overshoots the mark and causes the market to decline. The US has had 0% interest rates since 2009. This is a long time with low rates. I am surprised the market is not higher.

This month’s inflation monitor data once again show the US market is experiencing deflation. I have not heard more than a handful of people discussing this deflationary data. I am wondering when more people are going to recognize this fact. I suppose that will be when the markets turn, then everyone will have seen it.

I hope you enjoy this month’s Inflation Monitor – August 2015.

Kirk Chisholm

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