A flood of money is pumping up the U.S. economy as Congress and the Federal Reserve (Fed) play Santa Claus.
The Fed’s measure of manufacturing output rose by almost 1 percent in November, reaching 96 percent of its prior peak of a year ago.
Retail sales for November were down by 1 percent. However, retail sales have been running well ahead of the economy. They remain 3 percent above their peak of a year ago.
Weekly employment data continue to be mixed. Initial unemployment claims increased to 885,000 in the second week of December, bringing the four-week average to 812,500, up from 742,000 a month ago.
In contrast to unemployment claims, unemployment insurance payments fell slightly, to 5.5 million, down from 6.4 million a month ago. The insured unemployment rate was 3.8 percent, down from 4.3 percent a month ago.
The Fed announced it intends to continue to provide sufficient money until the economy reaches maximum employment. It is also aiming to get inflation above 2 percent for some time to offset its recent move below this level. To achieve its objectives, the Fed plans to purchase at least $120 billion in securities each month and hold short-term interest rates near 0 percent,
COVID-19 Developments
We all are hopeful the vaccines prove to be effective. In the meantime, we owe it to ourselves and others to know what to do to keep from getting COVID or to treat it.
Although the FDA and NIH have not produced a recommended protocol, doctors treating the disease have produced one. The advice is based on the success they and other doctors have had in helping patients recover. In last week’s report, I sent a link to Dr. Pierre Kolby’s testimony before Congress explaining these protocols. Dr. Peter McCullough of Baylor University also has an instructive video with similar suggestions.
The American Association of Physicians and Surgeons has a downloadable guide explaining what you can do to prevent and treat COVID. The guide is consistent with the conclusions of the other doctors mentioned above. I highly recommend downloading the guide so you have the recommended protocol and have an idea of what to do to prevent COVID and treat this disease.
Market Outlook
The bull market sent all five of my market indexes to new all-time highs. The S&P500 closed 12 percent above my estimate of its fundamental value. Although stocks are overvalued for current conditions, I expect this bull still has more to go before it is exhausted.
The recovery remains strong. COVID will be contained by a combination of effective medical protocols and vaccines. The Fed is playing Santa Claus, flooding the economy with money to give everyone whatever they want. Although the so-called “stimulus” package is actually bad news, few seem to realize it.
I hate to be a Scrooge, but our current policies mark the beginning of major move away from classical economic principles. We have seen this movie before. It ends badly.
Our challenge is to be able to ride the wave up without getting drowned by the undertow. In a report early next year, I will deal with the current policy mix, its short-term euphoria, and strategies for dealing with its eventual implications.
Until then, let’s enjoy the gifts our government is giving us. They come with strings attached. Our objective is to be nimble and quick in this coming year so that we get to keep them.
Forces Impacting the Near-Term Outlook for Stock Prices:
Economic Fundamentals: positive
Stock Valuation: S&P500 over-valued 12 percent
Monetary Policy: highly expansive
What to Expect Until Next Year
Nothing much tends to happen with financial markets around the holidays. It’s a great time to step away and spend time enjoying family and friends. I intend to do so.
I’ll still be tracking developments. If there are noteworthy developments between now and the new year, I’ll put out a report.
In the meantime, I wish you and your loved ones a very safe and Merry Christmas and a wonderfully Happy and Prosperous New Year.
See you next year … if not sooner.
