Wednesday, June 2, 2010

Sell into this stock rally!



Fiscal data that I track shows the government taking in money faster than it can spend it. This constitutes rising fiscal drag and means the economy is going to slow. The stock market is a sale at these levels. The Dow will soon be back below 10,000.

7 comments:

Mike Sandifer said...

Yes, and taken with falling TIPS spreads(to about only 1.5%), there is real reason to think we'll be worse off 6 months from now.

Mike Sandifer said...

Update: I just checked today and the current 5 year TIPS spread is 1.625, which is obviously still well below the Fed's typical 2% target, which could be particularly crippling in an economy in this shape.

Mike, since you know way more about this, am I correct in seeing this as almost tragic in our current circumstances?

Mike Norman said...

Mike,

A little followed statistic know as the Net Change in the Treasury's Operating Cash Balance is once again nearly positive. This statistic basically shows the rate at which the government spends or takes in money. When th statistic is negative--which is most of the time--it means that the government is spending money faster than it is taking it in, which is like stepping your foot on your car's accelerator--you'll go faster. However, on rare occassions, this number goes positive, which means that the government is taking in money faster than it is spending it. That's akin to stepping on the brakes. This number went positive in early 2000 and in May 2007 (most recent occassions). It went positive briefly last month and is about to go positive again.

MortgageAngel said...

I love this blog. I learn so much from the posts and reader comments!

Mike Sandifer said...

Mike,

That's very interesting. I don't remember ever hearing that statistic cited, yet ceteris paribus, it should be significant.

Mike Norman said...

Mike,

You can find it on the Daily Treasury Statement and you can ONLY find it analyzed extensively, each day, in my report, Fiscal Trend Digest!

Mike Norman said...

Thanks, Jill! Spread it around!!!