February 26, 2008
At
first glance, the inflation picture from the 1970s
doesn’t look anything like the economic conditions that
we are facing in today’s market. However, there are
distinct correlations between the 1970s and today that
need to be identified.
Specifically, the Investment Rate tells us that consumer
liquidity levels were declining steadily between 1969
and 1981. This encompasses the stagflation period of
the 1970s. Further, the Investment Rate tells us that
consumer liquidity levels have peaked in 2007 and that
they are poised to decline steadily for the next 16
years. The distinct correlation is that consumer
liquidity levels declined significantly during the 1970s
and they are poised to decline significantly from this
point forward.
Consumer liquidity levels on a macro basis do not
decline often. In fact there have only been two
distinct periods of prolonged declines in consumer
liquidity levels since 1900. The first decline in
consumer liquidity levels occurred between 1928 and
1938. The market, during this time, provided an annual
compounded rate of return of -6.4% to investors. This
was also the first downtrend in the Investment Rate and
it was better known as the Great Depression.
Then,
between 1938 and 1965 consumer liquidity levels
increased year after year; the slope of the Investment
Rate was positive for this duration. The market during
this period of time also increased substantially.
Specifically, during this uptrend in the Investment Rate
the market provided a +6.85% compounded rate of return
to the investor; this was a time when consumer liquidity
levels were steadily increasing.
Over
time consumer levels of liquidity do increase
substantially, but there are distinct periods of decline
in consumer liquidity levels that have already proven
critical to the health of the economy and the stock
market. The first was the Great Depression, and the
second was the Stagflation period of the 1970’s.
Officially, we have now entered into the 3rd
major down period in US History according to the
Investment Rate, which is a leading indicator of
consumer liquidity levels.
The
correlation between the 1970s stagflation landscape and
today’s economic environment is that consumer liquidity
levels are declining proven by the slope of the
Investment Rate.
Review
the Investment Rate by clicking the Investment Rate link
in the upper left corner.
Good Trading
Stock Traders Daily
http://www.stocktradersdaily.com
1.866.213.2067
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