I have uploaded an April 26th Market update. Click here to go to the show archives page to listen and to view any supporting links or you can listen on the link below.
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-The U.S. economy continues to outperform as GDP growth comes in higher than expected.
-The BEA stated that the federal “shutdown” shaved 0.3% off the GDP headline number (3.2%). This would have produced a 3.5% SAAR growth rate.
-My original thesis from back in 2012 remains in effect. I wrote about this on Henry Makow’s website. If anything the trend has been reinforced with the United States’s higher energy output.
-Higher sovereign debt levels cause higher asset prices. It is a self-generating dynamo. The PPT does not have to go into the market much (only during times like late last December). Higher UST levels accommodate higher asset prices, which support higher debt levels at lower interest rates. -The Fed can step in and absorb the extra UST issuance, which keeps rates low.
-Despite higher asset prices, inflation stays low, because higher debt levels are a deflationary force, while the financial shell of assets stays separate from the real economy.
-In isolation, the Fed should be more hawkish, but it cannot for two reasons:
1) The rest of the developed global economy can no longer afford to deal with higher rates.
2) The global economy continues to underperform the U.S.
-Thus, the U.S. economy and asset markets are the beneficiary of dovish Fed policy.
-As the global economy flounders, global price pressures remain subdued. The U.S. economy is benefiting from a ultra-dovish Fed and low inflation from the oversupplied global economy.