Inflation is worse than the Fed recognizes

BY MATTHEW SCHOENFELD

Bloomberg NewsAugust 11, 2014 

The Federal Reserve has repeatedly pointed to subdued inflation as a justification for carrying on with its extraordinary efforts to stimulate the U.S. economy. It should be paying much more attention to a trend that its inflationary gauge is missing: the tremendous run-up in the prices of all kinds of assets. 

One need look no further than the stock market to see that something is awry. In 2013, U.S. equity prices rose 28.3 percent in inflation-adjusted terms, while the comparable pace of growth in the broader economy was only 2.2 percent. In other words, in real terms, equity prices grew almost 13 times faster than the economic activity required to justify them – the highest ratio since the abandonment of the gold standard in 1971. In 2014, the ratio is on track to exceed 5 for the third year in a row.

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DYI Comments:  Despite this slow recovering economy many areas have picked up steam.  Auto sales are doing well, in fact, it could be called vigorous; unfortunately the latest push in sales is due to sub prime loans. Corporate profits, along with profit margins, are robust.  Consumer confidence has improved along with confidence for increased hiring unfortunately hourly wage growth is lagging.  Housing starts are still lagging but that is to be expected as it will take time to work off the excess inventory during the boom years.

All in all it sounds great.  The downturn ended in June of 2009 this economic recovery is long in the tooth, setting the stage  for an economic downturn along with a market blow off.  When you are on top of the mountain (more like a large hill) no matter what direction you go, its downhill.

DYI's averaging formula for dividends (Price to Dividends) is 117% greater than the average.  This market is devoid of any reasonable value for the long term investor.  As I stated more than I can count; The Great Wait Continues.  

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DYI