Consumption Trends

Image courtesy of Consumer Metrics

Our friends at Consumer Metrics have created a 4 year chart of absolute demand for the US economy.

With the 2005 year indexed as 100, it is noteworthy to see that in spite of record money printing by the Federal Reserve, at no time did we manage to reach the baseline in the past 4 years.

Over the past year or more, the trend is once again down.

With the trend, we can expect disappointing earnings from stocks which is likely to reinforce the downtrend in the market that began in October for the S&P 500 and the Dow. 

Many foreign indexes peaked out much earlier.

The Canadian market topped out in March 2011.

The German, French, and British markets peaked in April 2011.

And the Japanese market peaked back in early 2010.

So the market trend is becoming quite clear - it is Down - along with the real economy!

What we will want to be keen to observe is any sign of stress in the bond market.

As stocks drop in valuation, there is a potential for their Price to Earnings to drop accordingly.

If P:E were to drop to the 10:1 range or lower, we could see an associated impact on the bond market.

Initially cash would flow into near zero yielding bonds driving prices up.  Precious metals should benefit along with bonds.

Based on these trends, we can expect 2013 to be quite harsh on the stock market, and a boon for bonds and precious metals as the "safe have" trade heats up.

After a major market correction, if history is any guide, we can expect the bond market to take a serious hit.  But that is a topic for another post.