Greetings!
Let's continue with last week's simple formula and then apply it to inflation:
All of the government spending less expenses +
All of the private sector spending less expenses +
All of the foreign spending less foreign expenses equals ZERO.
G + P + F = 0
This simple formula creates the most profound ramifications. For example, the US government deficit might look like this:
G (down) + P (up) + F (up) = 0
If the Government spends more than it brings in, the money moves into either one or both of the private sector or foreign sector.
This is not the same formula for money. If the Federal Reserve creates more money, then it could go into one or all three of the sectors, and the application of this is interesting:
Domestic currency +
Foreign currency equals infinity
There is no limit on money. US government spending is not limited by any currency concern. Instead, it is limited by inflationary pressures. The US dollar value exists relative to other currencies; it does not exist in a vacuum. As long as Cyprus, Greece, Italy, Spain, you-name-it, has problems that make the US dollar more safe relative to another foreign currency, then the US dollar has support and may retain its value.
This is both profoundly satisfying and disturbing. We can take sanction because our USA spending problem, on a relative basis, is profoundly less bad than our neighbors. We must take heed because the ramification of this formula is that we are not in charge of our inflation. We could do everything very well and if our neighbors did it better, our dollar may still lose value. When a country's politician says, "We are all in this together," it is more than a platitude. The world's economy is a handshake agreement between a complex array of nations.
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| Weekly Economic Update | |
SOLID GAINS IN HOUSEHOLD SPENDING, INCOME
According to the latest Commerce Department report, household spending was up 0.7% in February (the largest gain in five months) while consumer incomes jumped 1.1%. February's 35-cent climb in gasoline prices influenced the first number, while an 11.9% surge in dividends influenced the second. Still, consumer spending rose 0.3% in inflation-adjusted terms. The personal savings rate improved to 2.6%. (1,2)
CONSUMER POLLS TELL DIFFERENT STORIES
The University of Michigan's final consumer sentiment survey for March came in at 78.6, improving by a full point from the end of February. The Conference Board's March survey of consumer confidence presented a strikingly different result: it dropped to 59.7 from February's 68.0 mark. The CB said the sequester had a negative influence, while the University of Michigan cited stock market highs, March's lower gas prices and the housing recovery as positive factors. (1,2)
SMALLER INVENTORY MAY HAVE CURBED HOME SALES
New home sales fell 4.6% in February, according to the Census Bureau; the National Association of Realtors noted a 0.4% decline in pending home sales for that month. Reduced inventory appears to have been a factor. The January S&P/Case-Shiller Home Price Index showed a one-month gain of 1.0%. (2)
FINAL Q4 GDP +0.4%; HARD GOODS ORDERS JUMP
This last estimate from the Commerce Department still makes Q4 2012 growth the smallest in any quarter since 2011. More big ticket items were ordered in February: durable goods orders soared 5.7% in that month after falling 3.8% in January. (2,3)
A RECORD CLOSE FOR THE S&P 500
A terrific quarter wrapped up Thursday with the S&P settling at 1,569.19, the Dow at 14,578.54 and the NASDAQ at 3,267.52. March was the fifth straight positive month for both the S&P and NASDAQ. Last week's gains: Dow, 0.46%; NASDAQ, 0.69%; S&P, 0.79%. Gold ended the quarter at $1,595.70, losing 4.8% in three months; oil settled Thursday at $97.23, rising 5.9% in the quarter. (4,5)
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| Market Summary |
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% Change |
Y-T-D |
1Yr Chg |
5-Year Avg | |
DJIA |
+11.25 |
+11.06 |
+3.87 | |
NASDAQ |
+8.21 |
+5.24 |
+8.90 | |
S&P 500 |
+10.03 |
+11.64 |
+3.86 |
(Source: cnbc.com, usatoday.com, treasury.gov, treasurydirect.gov -03/28/13). Past performance is no guarantee of future results. Indices are unmanaged, and investors cannot invest in them directly. |
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Create a beautiful week!
Karl Frank, MBA, MSF
Certified Financial Planner (R)
A & I Financial Services LLC
303.690.5070
Citations:
1 - www.nytimes.com/reuters/2013/03/29/business/29reuters-
consumer-spending.html [3/29/13]
2 - www.csmonitor.com/Business/2013/0329/Strong-rise-in-
consumer-spending-caps-good-week-in-economic-news [3/29/13]
3 - www.foxbusiness.com/economy/2013/03/26/durable-goods-orders-big-ticket-items-durable-goods/ [3/26/13]
4 - www.cnbc.com/id/100600350 [3/28/13]
5 - www.proactiveinvestors.com/companies/news/42162/
oil-caps-longest-winning-streak-o
Securities offered through Geneos Wealth Management, Inc., member FINRA/SIPC. Investment advisory services offered through A & I Financial Services LLC, registered investment advisor. |
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| Words for Thought |
"One must shy away from questionable undertakings, even when they bear a high-sounding name."
Albert Einstein
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Riddle of the Week
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Which positive whole number can you add 1.5 to and get the same result as you do when you multiply it by 1.5?
Last week's riddle:
The 22nd and 24th U.S. presidents had the exact same parents - and yet, the 22nd and 24th U.S. presidents were not siblings. Why?
Last week's answer:
The 22nd and 24th U.S. presidents were both the same person - Grover Cleveland. |
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