Hurricane Sandy has clipped the last week of October Auto&Lt. Truck sales, yet they were still reported at 14.9mil SAAR (Seasonally Adjusted Annual Rate). The Household Survey was reported higher by 410,000, and both trends are presented in the chart below. The controversy over the sudden rise in employment for Sept, in which some individuals claimed that the data had been manipulated for political purposes, is a charge which has no basis in fact. The data is collected statistically with an error of +/- 436,000 on a base of 143mil employed individuals. Errors can add month to month, but eventually they reverse and net/net is the trend with a choppy appearance, as you can see below. Just before the Sept 2012 report we had experienced such a back-to-back statistical event in my opinion, which was reversed for Sept 2012. One has to be looking at this data continuously to not jump to any particular conclusion on a single month’s data point.
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Auto&Lt. Truck sales would likely have been a bit higher than reported, if it were not for the devastation of Sandy with its flooding and power outages. I am without power still in NY and a number of you are suffering the same, but it is returning. The end result of Hurricane Sandy will be a surge of replacement vehicles purchased, a surge in construction employment, and a general boost to GDP. Many may believe that this is only temporary, but my estimate is that the economy is recovering at a decent pace anyway, with home building and major construction just beginning.
I remain quite optimistic for higher equity prices and over the longer term, I believe that those who are over committed to commodities and real estate as a hedge against a collapsing US$, due to hyper-inflation ,are going to find that such an event does not occur. I fully expect the US and global financial systems to slowly heal their debt overloads and to do this without inflation with currency collapses.
The only way a single country can inflate its way out of debt is to do it vs. other countries. If we all do this, then we remain in exactly the same currency relationship to each other. There is only one choice in my opinion, and that is each of us has to work through the debt on our own.
The end result is in my estimation that there will be no currency devaluations and no inflationary episodes out of the ordinary. Those currently planning for such events could find themselves in the wrong investments while the world moves forward. Eventually, I expect that there will be a rush into common stock SPDR S&P 500 ETF Trust (NYSEARCA:SPY) as the expanding economy, as shown by vehicle sales and employment, drives corporate earnings and dividends.
I call your attention to the 12mo Trimmed Mean PCE core inflation indicator, which was just reported at 1.8% for September 2012. The inflation trend is lower, as can be seen in the 6mo year-over-year annual rate shown in the table below. The monthly, 6mo and 12mo data are shown in the tables at the bottom of this note. Inflation’s trend is lower. I expect it to continue in this direction, even with all the liquidity the Fed has pumped into the system. The fact is, we are simply not spending the money. We are being conservative, cautious, and want good value for any hard earned cash. Low inflation, which appears to be trending even lower, is a great environment for common stock!